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Remember, the “Savings” Element is the Cash Value
To quickly summarize, term life insurance helps provide a founda- tion of financial security upon which to build your financial plan. By contrast, whole and universal life insurance policies allow you to build cash value to help meet unexpected future financial needs.
It’s important to understand that the “savings” element of whole life and universal life insurance policies is the “cash value”—or the amount of money accruing within the policy.
• The cash value of whole life may be pre-determined and fixed when the policy is issued or, in some policies, may depend on the interest rates the company credits.
• The cash value of a fixed universal life policy depends on the amount and timing of premium payments, the expense and risk charges the insurance company charges for providing benefits, and the interest rate the company credits.
• The cash value of a variable life or variable universal life policy will vary depending upon the performance of the investment accounts you select. Increases in cash values are not taxable until withdrawn. Some policies may allow you to borrow against the cash value or use them to pay future premiums. Amounts borrowed may become taxable if a policy with an outstanding loan is surrendered.
What about Annuities?
As defined by the American Institute of Certified Public Accountants, an annuity is a contract between you (the purchaser or owner) and an insurance company. In its simplest form, you pay money to an annuity issuer, and the issuer then pays the principal and earnings back to you or to a named beneficiary. Annuities are generally used to provide income in retirement.
Creating Savings Through Insurance
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