Happy New Year! Hopefully you’ve got some goals set to make 2013 your best year yet. This post is going to be focused on whole life insurance cash value, one piece of the whole life insurance puzzle.
Whole Life Insurance Cash Value can be looked at in two ways – but before we get into that let’s make sure we’re on the same page when it comes to how the cash value got there in the first place.
Originally, whole life insurance was more simple. A policy owner would pay a level premium throughout their life, and were guaranteed to receive a death claim. Since premiums would add up to large amounts of cash over time, insurance companies produced a policy that would offer a cash reserve which built up to the known future claim, or death benefit.
These policies were essentially designed with the guarantee that the whole life insurance cash value would equal the death benefits at maturity (originally near 100 years old, but recently changed to 121). At maturity, the policy holder would simply receive the matured value, the death benefit, or cash value, both now being equal, plus a guaranteed minimum interest rate.
Two Important Characteristics of Cash Value
First, whole life insurance cash value is an asset. It’s something you own. Just like selling any other asset (gold, silver, real estate), you can liquidate the cash value of your whole life insurance policy. In doing so, you cancel your policy, and that equity you have built will be returned to you by the insurance company. Since whole life insurance is a contract between you and the insurance carrier, at any point throughout the life of the policy you have the right and option to walk away, and receive any and all cash value that has been accumulated.
Secondly, it represents the money you can loan against, or the collateral you now have. By contract with the insurance company, whole life insurance cash value can be collateralized at your discretion, up to the amount you have in cash value. Each carrier differs in when and how you can collateralize this cash value, but most allow it early, and for as long as you have the policy. To be able to use whole life insurance as a bank, like the Infinite Banking Concept suggests, you will want to use proper insurance companies to allow for immediate access.
(If you’re unfamiliar with how loans from a life insurance policy work check out our policy loans article.)
Early Cash Value
Among the many variations of whole life insurance is the high early cash value. A policy owner that wants early cash value can structure a policy to have cash value today, in order to be able to maximize returns, as well as have access to money inside the policy.