cash-value life insurance

cash-value life insurance

A type of life insurance in which part of the premium is used to provide death benefits and the remainder is available to earn interest. Thus, cash-value life insurance is both a protection plan and a savings plan. This insurance entails a significantly higher premium than protection-only insurance and, depending on the issuer and the policy, may pay a relatively small return on savings compared with other investments. Also called permanent insurance, whole life insurance. Compare term insurance.
Is cash-value life insurance a good investment? Why? For whom?

For many years this was a lousy investment pushed by excellent sales forces, often using deceptive practices to mask how poor it really was. In recent years the situation has changed, with the widespread offering by major companies of universal life and interest-sensitive whole life, both of which pay competitive interest rates on the cash-value portion of the policy. These policies can be an appropriate—even an excellent—investment because of the lack of federal taxation on the internal earnings of the policies. And if they are held until death, no tax is ever paid on these earnings. If the owner ever needs funds, he or she can borrow from the policy rather than cashing it in, thereby continuing to avoid taxation. TIP: Cash-value life insurance is an investment and should be treated as such. If you just need protection, buy term; 10- or 20-year level premium term policies are available.

Thomas J. McAllister, CFP, McAllister Financial Planning, Carmel, IN
References in periodicals archive ?
Moscow: Sberbank in the first half of 2018 registered the same amount of cash-value life insurance (CVLI) policies taken out by new clients in 2017.
Permanent cash-value life insurance offers a source of potentially income tax-free funds, because withdrawals generally come first from the policy owner's basis.
Weintraub often recommends the owner create a Section 162 bonus plan using cash-value life insurance to work around those restrictions.
5) Life insurance: Cash-value life insurance is essential to a quality financial plan.
These products allow the underinsured and those with a lack of savings to do three things: Protect families against the cost of a premature death; build up cash-value life insurance; and provide meaningful living benefits if LTC needs strike early.
I agree with Milevsky that to attack cash-value life insurance is a dangerous business.
Currently, sections 7702 and 7702A of the Internal Revenue Code set rules that assume a cash-value life insurance policy will mature when the insured attains an age of 95 to 100.
More recently, with guidance and a ruling issued in fall 2007, the Service declared as abusive certain trust arrangements involving cash-value life insurance and providing post-retirement medical and life insurance benefits.
Cash-value life insurance is considered a form of forced savings.
If that doesn't bridge the gap between income and expenses, consider tapping into nonretirement financial sources such as taxable savings or money market accounts, cash-value life insurance, or taxable investments such as mutual funds or individual stocks or bonds.
The sample of policies that was examined consisted of two types of cash-value life insurance: participating whole life (29 policies) and universal life (62 policies).
If you choose to buy cash-value life insurance, buy your policy directly from the company.