At this point, you already know that there are life insurance plans that accumulate cash value over time.
This includes variable life, universal life, and whole life insurance plans. You can receive the cash value as a lump sum. Or, you can use it as collateral when applying for bank loans.
The cash value continues to grow as long as you maintain your eligible life insurance plan.
In this post, we’re going to show you how to calculate life insurance cash value.
So, read on to learn more!
What You Need to Know
As a policy holder, your cash value is usually unique for several reasons. This includes your premium payments, insurer policies, type of policy, and loan balances.
Here are few things that you should know when you want to calculate cash value of life insurance.
1. Premium Payments
When you make premium payments, a portion of the payment is invested by your insurer. Your insurer usually invests the money in low-yield investment options. So, as long as you pay your premiums, the value will continue to grow.
However, if you opt to use the proceeds to pay your premium payments, then you cash value won’t grow quickly.
2. Death Benefits
The core purpose of life insurance is to provide the policy holder’s beneficiary with the policy’s value after their death. As such, the “death benefits” element is crucial when you calculate life insurance cash value.
When you first purchase your insurance plan, it’s face value is usually your death benefits. As you continue to pay your premiums, a percent of the payments goes to your death benefits.
This means that your cash value becomes a greater fraction of the death benefits as long as you continue paying the premiums.
3. Loan Balances
As noted before, you have the option of using your cash value as collateral when borrowing loans.
But, keep in mind doing that affects your death benefits. This is because your cash value if part of your death benefits. So, the more loan balances you have, the lower your cash value.
When your loan balance meets or exceeds your cash value, your beneficiary will not receive the death benefit payment.
For that reason, you should only borrow against your cash value when it makes sense. This includes when you have a high cash value, and you want to invest in an opportunity that generates reasonable returns.
4. Cash Value Charts
Some whole life policies usually come with charts. These charts show you the expected appreciation of your cash value over the years. You’ll see a corresponding amount with each number of years you maintain your plan.
Now You Can Calculate Life Insurance Cash Value
With these tips, you now know how to determine the cash value of life insurance policy. As noted before, your cash value is usually unique depending on your plan and insurer’s policies.
Whatever the case, pay attention to your loan balances and premiums. You need to know that this works similar to a home mortgage. Ideally, the accumulation of your cash value slows over time. This is because the older you get, the more it becomes costly to insure your life.
Are you looking for life insurance in North Carolina? Amistad Insurance Services can help. Just feel free to reach out to our team.