A life insurance policy might have a hidden value, but what type of life insurance policy generates immediate cash value? When needed, you can immediately access money through your policy’s cash value portion. But not all types of insurance policies have a cash value.
Two main life insurance types having this component include universal life and whole life. These two are permanent life insurance policies that will be staying with you for as long you pay for the premiums.
But the other type, which is term life, doesn’t compose a cash value, and it only provides coverage for a certain period. You can leverage your policy for cash through different ways, including life settlements, withdrawals, surrenders, and loans. Each option works differently and has different effects on the policy value and death benefit.
Cash Value In A Life Insurance Policy
When we say the cash value portion of life insurance, the living benefit is which the policyholders can draw funds. Most of the permanent life insurance plans have a cash value that can be acceded immediately. But take note that this can impact the death benefit that your surviving dependents will receive.
The life insurance net cash value is the total amount of money that the policyholder will receive when canceled. This is calculated by deducting the cash value with surrender charges, fees, and outstanding loans taken out against the policy.
As mentioned earlier, you can access the cash value in different ways. The cash surrender value is the amount of money that one can get after the surrender fee has been deducted from the cash value.
When you surrender your insurance coverage, it means that your policy is not effective anymore. The insurance company will be giving a lump sum upfront, so your benefit is not active anymore. But if you don’t want to lose your death benefit, you have other options to choose from. Some of which are taking out loans or partial surrender. The latter will reduce the death benefit while the former won’t. Take note. However, not all types of policies allow cash withdrawal through the aforementioned methods.
Which Types Of Policies Can You Withdraw Cash?
In deciding to withdraw your life insurance plan cash value, you have first to check the policy type. This is because you can only access cash from those with a cash value portion, and not all have this particular component.
The most common option that includes this component is the permanent life insurance plan. It has different types, including whole life and universal life insurance policies. The latter is further classified into two subtypes, including variable and indexed.
Unlike the two types mentioned a while ago, the other type of life insurance which is term life insurance has no value component. But, in rare occurrences, you may sell your term life insurance policy onto the secondary market. This can be done in the form of a life settlement.
But among the two permanent life insurance, whole life is more likely to have a cash value attached to it than universal life.
In a whole life policy, both the death premium and death benefit will stay constant. On the other hand, universal life offers flexibility in the premium payments to be made over time. But either of the two allows the policyholder to get a loan or withdraw cash from their policy.
Factors Affecting A Policy Cash Value
At this point, you might have known already that only a universal or whole life insurance policy can generate cash value. As you are paying for your premiums, that will accumulate over time as a cash value. You can leverage this to cover your financial needs.
A few factors play an important role in determining the amount of cash you can get from your insurance policy. To have an if how much is the net cash value in your insurance, keep in mind the following:
- How long your insurance policy has been active
- The total amount of premium payments you made
- How strong is the market in which your insurance plan is invested
- Have you previously taken out loans or withdrawals against your insurance policy
But can also ask the insurance company directly about the current cash value amount in your policy.
It’s A Wrap!
For the quick answer to the question: what type of life insurance policy generates immediate cash value, a universal or whole life insurance will most likely allow you to withdraw cash against your policy. Now, if you wonder why people would decide to withdraw cash against their insurance policy, it could be due to several reasons like financial hardship.
Another reason is when people think that the insurance policy is not serving its main purpose anymore. Finally, you can access the cash in different ways, including a complete or partial surrender. They can also borrow from it through a loan.