Does your money grow in life insurance?

Yes, your money can grow in certain types of life insurance policies. This growth is primarily associated with permanent life insurance policies, such as whole life insurance or universal life insurance, which have a cash value component. Let’s explore how these policies allow for financial growth.

1. Whole Life Insurance

Whole life insurance combines lifelong coverage with a savings component known as cash value. A portion of your premium goes toward this cash value, which grows at a fixed interest rate determined by the insurance provider. Over time, this cash value increases tax-deferred, meaning you don’t pay taxes on the growth unless you withdraw it. While the growth in whole life insurance tends to be steady and predictable, the rates are generally lower compared to other types of investment-based policies.

2. Universal Life Insurance

Unlike whole life insurance, universal life offers more flexibility in terms of premium payments and death benefit amounts. The cash value in universal life insurance accumulates based on current interest rates, which can change according to market conditions. This means that the growth of your cash value might be slower during low-interest periods but faster when rates rise. The flexibility in premium payments makes universal life an attractive option for individuals looking for both growth and adaptable insurance coverage.

3. Variable Life Insurance

Variable life insurance allows policyholders to invest their cash value in sub-accounts, similar to mutual funds, which can lead to greater growth potential. However, with higher potential returns comes higher risk, as the cash value in variable life insurance can fluctuate depending on market performance. If investments perform well, the cash value grows faster; if not, there could be little or no growth.

4. Indexed Universal Life Insurance (IUL)

Indexed universal life insurance offers a middle ground. The cash value grows based on the performance of a stock market index, like the S&P 500. However, there is usually a cap on returns and a floor to limit potential losses. This allows for market-linked growth with a level of protection against major market downturns.

How Does Your Money Grow?

The cash value in these policies grows in two key ways:

• Interest Rates: Fixed or variable, the interest rate determines how quickly your cash value grows.
• Dividends (in some cases): Some whole life insurance policies may offer dividends based on the company’s financial performance. These dividends can be reinvested into the policy, leading to faster cash value growth.
  
  

Can You Access the Growth?

Yes, once your cash value has accumulated, you can access it in a few ways:

• Loans: You can borrow against your cash value, which doesn’t reduce the policy’s death benefit unless the loan is unpaid.
• Withdrawals: You can also withdraw part of your cash value, although this might reduce the death benefit.
• Surrendering the Policy: If you decide to cancel your policy, you can receive the accumulated cash value minus any surrender charges.
  
  

What About Term Life Insurance?

Unlike permanent life insurance, term life insurance does not have a cash value component, meaning there’s no savings or investment element. The premiums you pay go solely toward the death benefit coverage, and there is no opportunity for financial growth.

Is It Right for You?

Investing in a life insurance policy with a cash value component can be a smart way to combine financial growth with coverage. However, it’s essential to consider your long-term goals and financial needs. These policies can be more expensive than term life insurance, but they offer the dual benefit of life protection and a growing cash value that can be used during your lifetime.

If you’re interested in exploring life insurance options that grow your money, Toby Hansen Insurance Agency can help you find the right policy to meet your financial goals. Contact us today to learn more about life insurance policies with cash value components!