Should You Keep That Permanent Cash Value Life Policy?
By Brett Gottlieb and John Mc Kean
When you did your due diligence and bought a life insurance policy, you had a whole slew of options to choose from. Not only did you need to educate yourself on the differences between term, convertible term, and permanent cash value life insurance (Whole Life, Universal Life, Indexed Universal Life), but you also had to shop around and decide where to get your policy from. You made the best decision for you and your family at the time and obtained a permanent cash value life insurance policy.
But now you may be wondering, “Is this still the best option? Are the high premiums worth it? Could I get better coverage through a different product?” Permanent cash value life insurance can get a bad rap, but it still has a place as a financial strategy, so let’s break down how these cash value life policies work so you can determine whether or not it is still right for you.
Permanent cash value life insurance comes in 3 common forms; Whole Life, Universal Life, & Indexed Universal Life. These policies guarantee that your premiums (paid monthly, quarterly, semi-annually, or annually) will stay at the same rate for the rest of your life or for as long as you hold onto the policy, as opposed to term life policies, in which the premiums are only guaranteed for a set policy period (10-, 15-, 20-, or 30-year options). However, premiums for permanent cash value life policies are typically higher than those of term life, possibly 6 to 10 times higher. (1) If you want a policy that will last for the rest of your life and you can find a reasonable rate, then permanent cash value life could be your answer. But if you need a policy that has lower monthly payments, then you may need to consider term life policies.
The Benefit Amount
The benefit amount, also known as the death benefit, is what your policy is worth in dollar value and what your family will receive after your passing. Whole life, universal life, indexed universal life, and term life all have different benefit amounts to choose from, with options anywhere from a $10,000 policy to well over $1,000,000. Whichever policy you have or are considering, make sure the benefit amount is enough to take care of any remaining mortgage payments, tuition fees, ongoing medical costs, other debts or expenses your current income covers.
The Policy Structure
This is the crux of the permanent cash value life insurance model. The reason why the premiums are higher for these policies is that a portion of the premiums go into a savings account created by your insurance company. The money in this account grows based upon various factors depending on the type of permanent policy. In a “Whole Life” insurance policy the cash value grows at a guaranteed rate based on the dividends and interest provided by the insurance company. In a “Universal Life” insurance policy the cash value grows based upon performance of the insurance companies stated general account interest rate that typically has a minimum guarantee as well. Lastly, in an “Indexed Universal Life” insurance policy the cash value growth is based upon the performance of an index, such as the S&P 500. These accounts also cap the potential upside gain and typically have a minimum guarantee as well.
Having this savings account can provide additional financial planning benefits when used properly. If you have an existing permanent cash value life policy (or have a quote for one) make sure you understand how the savings account can benefit you and that it is being used most effective.
Where Do You Go From Here?
When choosing a life insurance policy, be sure to educate yourself on what and who you need to protect and how much money you will need to do just that. Once you’ve gathered all pertinent information, reach out to a financial professional, with an insurance license, and have them compare the premiums, as well as the benefit options offered. Then see how the quoted premiums fit into your budget and how the various options available fit with your financial goals.
If you currently have a permanent cash value life policy, it’s worth another look to make sure your money is working for you. Not only have insurance costs gone down over time, but it’s also possible your policy is underperforming its original projection. If you want help evaluating your life insurance policy and coverage or want to know more about protecting your assets, our team at Comprehensive Advisor would love to be your unbiased source of advice. Email us at info@ComprehensiveAdvisor.com or call (760) 813-2125 to get started.
About Brett and John
Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees in Business Administration and Economics. Brett is Life Insurance licensed in several states.
John Mc Kean, financial advisor, joined Comprehensive Advisor in 2016. He has been in the financial services and retirement planning industry for over six years. John is Life Insurance licensed in California.
Brett and John previously worked as Registered Representatives with Securities America, one of the largest independent broker/dealers in the country, and currently offer advisory services through AE Wealth Management, LLC. Both are passionate about educating clients on retirement planning. They take a common-sense approach to the planning process and work with clients to create a retirement road map to help ensure their assets are protected and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County. Learn more by connecting with Brett on LinkedIn or email them at info@ComprehensiveAdvisor.com.
Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Comprehensive Advisor are not affiliated companies. California Insurance Licenses #0C68886 & #0K37445. Neither the firm nor its representatives may give tax or legal advice. Investing involves risk, including the potential loss of principal.
This material is intended to provide general information and is believed to be reliable, but accuracy and completeness cannot be guaranteed. 305902