When most people think about life insurance in general a lot of different things come to mind such as protection, investment, tax shelter and cash value. It is not surprising that many believe that all life insurance policies have a cash value element in them. The reason is that out of all life insurance product categories majority actually do have a cash value accumulation. However, when it comes to a term life insurance policy it’s quite different.
People that buy term life insurance are usually concerned about providing their family with protection so they can send the kids to college, pay off mortgage and replace the otherwise lost income in the event of unexpected death. But because children grow up, mortgages get paid off and people reach their retirement goals. Life insurance can no longer be a necessity so term life is perfect for that crucial time frame.
So does term life insurance have cash value accumulation? The answer is No. (So if we just answered your question, click here to compare term life quotes) Term life insurance does not accumulate any cash value and is simply basic life insurance protection with no bells or whistles. Term life is the most popular life insurance policy too, because it is simple and affordable. It is designed to provide protection for a set period of time, usually ranging from 5 to 30 years. It is also known as a pure protection life insurance product, so it’s straight to the chase, you pay a fixed monthly premium for an exchange, the company will pay out a large sum to your beneficiaries in the event of death.
Now there is one particular term policy that has a cash value accumulation. It is the return of premium term a.k.a ROP term. The coverage is no different than a regular term policy, except that at the end of your term with an ROP term you get all your premiums back if you did not pass away during the agreed upon term length. This type of a term plan is also more costly since the company wants to invest the funds to be able to provide you coverage while still being able to return the money if you outlive the term.
Cash Value Plans
True life insurance policies that have a strong focus on generating cash value and providing protection are permanent life insurance policies. Which are simply designed for a lifetime protection. You may have heard of a whole life or universal life insurance policies. These are both permanent cash value type of policies which differ in the types of investments your cash value account will partake in. Regardless of which cash value plan you pick, they generally have the same concept. Your monthly premium gets broken down into two parts. First part used to pay for the life insurance protection and the second part going into a cash value account where the money will be invested in bonds, stocks or your choice of funds.
These types of plans are costly but are not a bad idea if you require a lifetime protection or have maximized your tax sheltered investments such as 401k or Roth Ira and are now looking for another investment vehicle with tax advantages. Most people that are looking for pure protection will just choose a term life insurance policy since it can provide lots of coverage for less money. However, permanent cash value life insurance has its place for specific situations such as estate planning, final expense costs, business continuation and etc.
Regardless of the type of life insurance you are looking for, we here at InsureChance work with over 60 top companies to find you the right policy. So don’t hesitate to run quotes without having to provide any of your personal information for term life insurance or permanent life insurance. Hope we were able to answer your question, but if we missed anything drop us a comment below or simply reach out to us.