Cash Value of Whole Life Policies
Whole life offers cash value. This can be used to pay a bill or fund some event. It can even be used to actually pay the premium of a policy. Down the road, if you decide to terminate the policy because the policy is not important to you, with regards to the death benefit, you can cash out and surrender the policy. However, if you cash in the whole life policy, the insurance will terminate, you have no protection, but you have the cash value. This value is very handy because in the event there’s an emergency, you can borrow money from the policy. Keep in mind, if you do borrow the cash value out of a policy, it is considered a loan. Therefore, if you take the loan out of the policy and you pass on, that loan is going to be deducted from the face value.
For example, if you have a $10,000 whole life policy and your cash value was $1,000, you can’t borrow all of it, especially if you want to keep the policy intact. Ultimately, there are some rules involved when you take a loan out of your policy. Let’s say, for instance, you’re allowed to borrow $900. So, $10,000 minus the $900 will be the death benefit. The carrier will always subtract the loan from the policy’s face amount. In that example, you are left with $9,100 of the death benefit. Always keep that process in mind.
Next time, we’ll talk about how policies grow in value.
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