In this article, you’ll learn which type of final expense policies do and don’t build cash value and how it can be used.
Cash value will accrue in any type of whole life burial insurance policy regardless of which insurance company you buy from. However, if you buy a term life burial insurance plan from a company such as Globe Life, there will not be a cash value component.
All types of permanent life insurance (whole or universal life) have cash value. It’s like a behind-the-scenes equity account that you can access while living. A small portion of your premium payments are redirected to this account, and it typically earns interest.
How much cash value accrues varies primarily based on your monthly payment and time. Also, there’s virtually no accumulation during the first two years (with any company).
Below are all the various ways the policy owner can use the cash value as it accrues. Not all companies offer these options, but most do. Insurance companies refer to these as the “nonforfeiture provisions.”
You can withdraw some or all of the cash value and spend it on anything. You can use the money to pay your premium(s) or anything else you desire. Whatever amount you extract will count as a loan against the policy, which will accrue interest. If you die with an outstanding loan, the insurance company will deduct the loan amount from the death benefit.
For example, if you have a $10,000 whole life policy and a $1,000 loan, the beneficiary would only get $9,000 when you die. Outstanding loans will increase since they accrue interest, so you should aim to replay them at some point, or the loan will continue to grow.
Surrender the policy
If you cancel (surrender) the policy, the insurance company will refund you whatever cash value has accrued.
Automatic premium loan
Often referred to as the “APL” provision, this feature will pay your premiums from the cash value so the policy does not lapse due to non-payment. It will continue to do so for as long as sufficient cash value exists. Once the money runs out, the policy will officially terminate.
This option takes whatever cash value has accrued and executes a one-time purchase of a corresponding amount of paid-up life insurance. After this conversion is complete, you’ll have a lower death benefit than the original amount, it lasts forever, and you will no longer need to make any premium payments.
For example, a 50-year-old male who bought a $25,000 whole life policy that costs $75.27 monthly would have an estimated cash value of $3,500 after ten years. That $3,500 in cash value would translate into about $7,000-$9,000 in paid-up life insurance.
The policyholder can choose to exercise this provision. At the same time, this option will often automatically be triggered by some final expense insurance companies when your policy lapses due to non-payment.
Before the policy lapses due to nonpayment, this provision will continue to provide temporary insurance for as long as there is sufficient cash value to do so. For example, if you have $2,000 of cash value, it may buy you extended-term insurance for six months after the policy lapsed because of failure to make payments.
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No exam final expense insurance is our specialty, and we partner with over 15 different companies, so we can compare each one to match you with the best provider.
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