Advisor Insights Insurance

Should I purchase cash-value life insurance?

Written by: Clinton Brown CFP®, ChFC, CLU, CASL®, CAP®

Sam is a 35-year-old marketing executive with a term life insurance policy. Sam is wondering how he can build wealth and sees cash-value insurance as a potential choice. He feels like he’s throwing his money away with term life insurance, knowing that it will go away when he’s 65, but he’s worried about putting a lot of money into cash-value life insurance, because he’s not sure what he’s allowed to take out and how he can benefit from it after he retires.

Sam is part of the 30 percent of Americans who know they need more insurance coverage. But if you’re like Sam, you may feel overwhelmed and a little confused by the difference between term and cash-value insurance, and how to make cash-value insurance work for you.

What’s the difference?

There are two different types of insurance. Term insurance is very straightforward–as long as you are making payments, you will be covered for the life of the policy, whether it’s 5 or 30 years. But once that term is finished, the money you put in is gone, and if you try to go out and get more, your premiums could escalate or you may not qualify. This type of insurance is similar to the process of paying rent instead of building equity. You’re just paying monthly to keep coverage.

Cash-value insurance (e.g., whole life, universal life, indexed universal life, and variable life) can accumulate value during the life of the policyholder. If you own cash-value insurance, then you can use the cash value as a tax deferral tool, as a bank account from which to borrow, and as a way to pay policy premiums later in life. You can also pass on cash to your children or other heirs, if you set it up that way from the beginning. Cash-value insurance premiums are higher because they are calculated over your entire life (not just the term of your policy) and the projections need to make sure there is enough cash to pay for the internal costs over that lifetime.  As long as there is a cash value within the policy, it pays out a death benefit to survivors upon an insured’s death.

Is cash-value insurance worth the price?

When clients come in, they are very worried about the future of their kids, retirement, and limited amount of money. Cash-value can address these three concerns by being a multi-tasking financial tool. We can help dissolve the anxieties of a variety of clients through this single financial vehicle.

Back to Sam. Sam is now 52 and has run into some financial problems, but because he decided to buy a cash-value insurance policy with a death benefit of $100,000, and paid into it faithfully for 10 years, it has now accrued enough cash value for the policy to pay itself. How is this possible?  When purchasing a cash-value life insurance policy, there are multiple ways to set it up. You can set it up with a goal of overpaying premiums, so at some future point you will not need to put in additional premiums. You can also have it structured so that you put in a lower amount of premiums and pay that over the majority of your life. Others can be constructed so that in a certain amount of time, all the money that was put in can come back to you in full (even after policy costs). Strategies of using the cash for future loans, education costs, and potential retirement are all popular.  A combination of the premiums and the underlying performance of the policy, minus costs, determine the future cash value of the policy.

While all of these strategies are common, the most important part of creating these policies is to understand the risks. What are the risks involved?  First is investment return. Depending on the type of policy, your money will grow (or fall) in different ways. It is important to understand those inner workings. Second, you will want to know the expenses. What are the costs of insurance? How about administrative charges? Another item to consider is the rating of the insurance company and its financial strength.

Is cash-value life insurance right for me?

Every person has certain goals, budgets, and priorities.  If cash value life insurance is suitable for you, then it can be an excellent choice if you are looking for a long-term investment for your money. If you are looking for basic coverage or want to invest your money elsewhere, then you may benefit more from term insurance. Then, as your income increases, you can make decisions about cash-value insurance later. In fact, many term policies have a “conversion” provision that allow you to convert to a cash value policy in the future without additional underwriting.

Caution is good, but don’t let fear glue you where you stand. You can always start off with a term insurance plan and then ease your way into a cash-value insurance plan. For example, when Sam makes the decision to start a cash-value plan, he chose to keep his term insurance. It’s still there, providing the same security it did before. By beginning a cash-value plan, Sam is simply building a stronger insurance foundation to protect himself and his family. When my clients make similar decisions, I like to remind them that they can buy more cash value life insurance as their income increases (assuming their health qualifies). Buying more cash value life insurance has no effect on your term plan or its rating, so you don’t have to worry about losing what you’re already paying for.

Make the right choice for you

Your financial plan should be based on the priorities for your family and your future. Cash-value life insurance can be a good option. If you have any questions in regards to creating the right plan for you, visit us at



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Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory Service offered through BCJ Capital Management. World Equity Group, Inc. and BCJ Capital Management are independently owned and operated. Investment advisory services are offered through BCJ Capital Management, an SEC registered investment adviser. BCJ Capital Management is a (SEC) registered investment adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. BCJ FG 17-455

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