| Whole Life Insurance, Universal Life Insurance, and Variable Life Insurance. |  |
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| Whole Life Insurance, Universal Life Insurance, and Variable
Life Insurance |
All of these types of insurance differ from Term Life Insurance in one
way: once you have paid your premiums for a number of years, the policy
will have a cash value attached to it. But, if you withdraw all or part of
the cash value, the amount of money you receive usually has substantial surrender
charges already taken out of the amount you will get. The amount you
may expect to receive when you terminate the policy is called the cash
surrender value. You may need to pay taxes on the cash surrender value
when it is paid out to you. |
If you buy a cash surrender value policy, be sure you will be able to keep
up premium payments for at least fifteen to twenty years. If you cash the
policy in before that time, the surrender charges and other expenses might
leave you little actual cash surrender value remaining.
Agent
commissions on cash surrender value policies are several times higher
than those on Term Life Insurance policies. Keep this in mind if an agent
continues to recommend a Whole Life Insurance policy when you ask about
Term Life Insurance.
The insurance company will lend you money against the cash surrender value
of your policy, or you may use your cash surrender value as collateral for
a bank loan. If the loan is with the insurance company, you may have the
option of paying the loan interest from any value that is left or future
dividends that you earn. But, if there is not enough left in your
account to support at least those payments, you are in danger of losing
the policy altogether. Plus, if you die and the loan has not been
repaid, the insurance company will deduct the amount owed plus interest
from the money paid to your beneficiary.
In recent years, some consumers were encouraged to make a loan against the
cash surrender value or to use dividends from insurance policies they
already owned to buy a new or additional policy. Some consumers found they
had taken too much in loans. They lost the first policy and then couldn't
afford the second policy.
Even if you are in no danger of losing one or both policies, these kinds
of transactions are not generally in your best interest |
Source: Massachusetts Department of Insurance
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For information about Lynch Insurance please contact:
William Lynch |
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