Do you want to take out life insurance but there are certain points that you still do not understand? Follow this comprehensive guide and find out what the concepts of face value and cash value mean. We will also tell you what their differences are and how they influence your insurance premium.
If you want to guarantee the well-being of your family and be sure that you have the best policy, there are certain points that you should know about your Life insurance.
Cash value and face value are two of the important elements that go into permanent life insurance.
It is very necessary that you know the differences that exist between them because they are responsible for increasing or decreasing the amount that will be paid to the beneficiary or beneficiaries after the death of the insured.
In simple terms, face value is the amount of money that the beneficiary (s) of the insurance you have purchased will receive at the time of your death.
It is the value that you grant to the insurer at the time of signing the contract and, regardless of how many years pass before your death, it will always be the same.
Rather, the cash value is the payment you will get in the event that life insurance ends or is canceled prior to your death.
It is important that you know that the cash value is obtained through the investments of the insurer.
Cash value is a characteristic of permanent life insurance. Don’t forget that term life insurance only has a face value but cannot benefit from cash value.
Advantages of cash value
Experts recommend that when purchasing permanent life insurance you opt for the cash value option.
Subscribing a policy of this type has several advantages. Let’s review some of them:
- Depending on the specific terms of your contract, cash value life insurance can be used almost like a savings account.
- Cash values are tax-deferred, therefore you will not have to pay taxes unless the funds are withdrawn.
- If the funds are withdrawn to use them, for example, for a policy loan, you will not have to pay the Treasury any amount at the tax level.
- At the time of your death, the policy beneficiaries can get a higher sum if your policy has additional options associated with it or if there are no funds in the cash value account.
Do not forget that before any change in your life you can review your life insurance at all times.
The cash value in universal life and whole life insurance
Cash value does not act the same for all types of life insurance. While in whole life policies and option B of universal life insurance this is paid together with the face value after the death of the insured, with option A of universal life insurance the cash value is not paid.
Ways to collect cash value
The cash value of universal life insurance can be collected in two ways:
After the death of the insured, the cash value in the account will be used as part of the universal life policy set out in the contract. The rest of the amount will be paid by the same insurer.
For example, if you have agreed to a universal life policy for an amount of 70 thousand dollars and you have 30 thousand available in the cash-value account, after your death the insurer will only pay 40 thousand. The rest will be paid directly from your cash value.
In this case, after the death of the insured, the amount found in the cash value account will be added to the face value of the policy.
For example, if the face value of your universal life insurance is 70,000 dollars and you have 30,000 dollars in your cash value account, after your death the beneficiaries will receive 100,000 dollars.