When most people think of the traditional definition of life insurance, thoughts immediately drift towards the old-fashioned whole life policies that your parents and grandparents might have relied upon. While it’s true that those traditional whole life policies haven’t changed drastically over the last few decades, they still serve extremely useful purposes, even in these modern times.
Furthermore, although whole life isn’t the only type of life insurance that accumulates cash value, its simplicity and methodical nature separate it from its cousins in variable and universal life. In other words, even in this dynamic world of ours, old-fashioned solutions still very much have their place.
Excess Cash Value
For older policies that have been growing by a steady rate for several years, it’s not unheard of to be sitting on excessive cash value with no specific purpose other than continuing to accumulate. In those particular cases, policyholders can contact the insurance carrier to negotiate a swap of cash value for an additional death benefit. Given the tremendous tax efficiencies with life insurance death benefits, this can be especially useful for estate planning.
Put Your Premiums on Cruise Control
Likewise, when sufficient cash value has accumulated within a policy, the policy itself can become self-sustaining with regard to monthly or annual premiums. Once again, a simple phone call to the insurance carrier can result in the company allowing the accumulated cash value to pay for the monthly premiums on the policy. This will have no negative impact on the death benefit itself and, depending on the cash value within the policy and the rate of return. It might not even have a drastic effect on the cash value either.
Take a Withdrawal on the Cash Value
Once again, depending on how much cash has accumulated within the policy, many carriers allow you to take withdrawals from the cash value. If life was to suddenly throw you a financial curveball that, for whatever reason, you were not well-prepared for, the cash value of your whole life policy could come in handy in those times of need. However, since nothing is perfect in this world, be prepared for your death benefit to take a hit by such withdrawals. The total amount of lost benefit is different with every carrier, so be certain you have all the information needed to make a well-informed decision.
Convert Your Cash Value to Retirement Income
Since the cash value within your policy grows on a tax-deferred basis, it can also be very useful in providing retirement income as long as you have sufficient death benefit elsewhere to serve your estate planning needs. While this income solution is quite a bit more costly and is rarely preferred to simply using an employer-sponsored retirement plan or an IRA to generate retirement income, converting cash value to a stream of income can be very helpful to those that find themselves in this particular situation.
Do you have an old whole life insurance policy with an accumulated cash value? Is it still a part of your comprehensive Financial Plan? Let us review it to see if it still makes sense or not. Simply click here or call (763) 445-2772 to schedule a complimentary consultation today!