Some Questions about Cash Value
When it comes to life insurance, you have two basic choices: Some for of cash value life insurance (including universal life) and term insurance.
Cash value policies have been sold for decades and are owned by millions of consumers. As a “bundled” policy, it requires you to buy both your death benefit and a cash value feature. However, this doesn’t enable you to maximize the benefits of the theory of decreasing responsibility. These concerns have led many leading financial writers and consumerists to direct consumers away from cash value.
Let’s clarify some facts about cash value:
Is bundling a good idea?
Many experts don’t think so. With traditional cash life insurance, a classic example of bundling, you often must choose either protection or cash accumulation: you don’t get both.
If you live, which is most likely, you can collect your cash value, but you may lose your life insurance if you receive cash. Although some cash value models – like variable universal life – allow cash withdrawals, even then the death benefit will most likely be reduced if you withdraw a significant amount.
Many consumer advisors recommend affordable term life insurance with a separate investment program outside the policy. This is called Buy Term and Invest the Difference concept. The “Difference” means the savings in premium charges between term and cash value insurance.
With this model, you have greater control over your benefits. Because protection and savings are completely separate, you can better control both the death benefit and the investment portion.
Can you afford bundling?
Most families are over-premiumed and underinsured.
The premium for average Term Life Insurance Premium per 1,000 of protection is $1.60
The premium for average Cash Value Insurance Premium per 1,000 of protection is $5.96.
As you can see, the premium for “two for one” policies is drastically higher than term! This difference in premium per thousand can ad up to several hundred dollars in annual premium. For most families on a budget, a few hundred dollars is a lot of money! The premium for a bundled product may prevent young family from buying the amount of coverage they need. Plus, the money saved with a less expansive term policy could be used to build an investment or savings program.
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