Cash Value in Life Insurance: Different Ways to Capture

You may read hundreds of articles online, and heard financial experts explaining the importance of a life insurance policy in your financial portfolio to protect your family against the eventuality of death. A life insurance policy gives your family the financial cushion they need if something happens to you.Thus, life insurance serves as a replacement of income to your family. The amount received from the insurer as death benefits can be used for regular expenses and the debts you may have.While a term plan only offers the death benefit, there are other life insurance plans with investment and returns components. These policies not only provide death benefits but also accrue cash value over the policy term. Universal life insurance and Whole life insurance are the popular life insurance plans that have a cash value.

If you have a considerable sum as cash value and don't intend to use the money anytime soon, you can divert the funds towards increasing the policy's sum assured value. Thus, in the event of any unfortunate event, your family will get a higher death benefit, and you can leave a good legacy for your family.Another smart way to use the cash value of your life insurance policy is to divert the funds towards the premium payments. If you are facing liquidity issues or a shortage of funds, you can easily pay the premium and keep it active. Most insurance companies will readily agree to this arrangement.While you can withdraw the accumulated amount and use it for any purpose you want, you can also avail a loan against the cash value at a competitive interest rate during an emergency. It is, in a way, borrowing your money while keeping the amount intact for future use.Another effective alternative to taking a loan is to withdraw the funds partially or the entire amount. Of course, when you withdraw the funds, it will have an impact on the death benefit. But, the extent to which it lowers the death benefit differs from one insurer to the other.While you may have invested in many investment instruments like mutual funds and fixed deposits , the cash value insurance policies can be an excellent supplementary retirement income. If you are looking to build a decent retirement corpus, you must stay invested for a longer period, at least 15-20 years.The cash value insurance policies give you the flexibility to surrender the policy and withdraw the accrued amount. However, you must know that the insurers will levy a surrender charge, which may vary from insurer to insurer. Also, the amount you withdraw is taxable. Final Word While investing in a cash value life insurance policy is a great way to grow your savings and build a corpus, you must not let the cash accumulate without any direction. It would help if you had a proper financial plan to redeploy the funds to get maximum benefits.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.