Permanent life insurance has the potential to accumulate cash values based on the performance of the crediting method and policy expenses. With few exceptions, most permanent guaranteed universal life insurance can be used as a supplemental retirement income plan; if the policy is designed to minimize the cost of insurance ad comply with TAMRA. Generally, the policy expenses are deducted from the premium. Whatever is left of the premium is invested in the crediting method: interest rates or indices. Separate sub account performance may credit earnings or debit losses.
President, The Firm of Steven H. Kobrin, LUTCF, 6-05 Saddle River Rd #103, Fair Lawn, NJ 07410
David has given you a fine explanation of the mechanics of cash accumulation inside life insurance.
I will address an additional point.
One big reason for why life insurance has cash value is because that cash makes more people want to buy the product.
When you think about it, life insurance really is not for the insured - it is for the beneficiaries of the insured. These include their families, their businesses, and their favorite charities.
For many people, it is considered a necessary evil. They certainly want to do right by all these folks they support, but really - who wants to buy something that pays off when you die?
I think that from a marketing point of view, cash value sweetens the pot. It makes the product much more appealing.
Now people can have their cake and eat it too. They can purchase a policy with a survivor benefit for their heirs. That policy can also have a cash account that is available to them while they are alive. They can use the money to supplement retirement; buy a house; fund a business; and for emergencies
Not only that: the cash receives very favorable tax treatment.
You might ask, “why does the government give such favorable tax treatment to life insurance?”
One big reason is that there is no way on earth that federal and state governments could take care of all the people that benefit from life insurance. It simply could not collect enough money to pay all the windows, widowers, children, businesses, and charities for whom people buy policies.
It is entirely in the government’s interest for people to buy tons and tons of life insurance.
And over time, people have.
The life insurance industry has poured trillions of dollars into the economy so that people can remain self-reliant - and off of government subsidies. The side benefit of a cash account helps make that happen.
.JPG){kind=avatar}
I will address an additional point.
One big reason for why life insurance has cash value is because that cash makes more people want to buy the product.
When you think about it, life insurance really is not for the insured - it is for the beneficiaries of the insured. These include their families, their businesses, and their favorite charities.
For many people, it is considered a necessary evil. They certainly want to do right by all these folks they support, but really - who wants to buy something that pays off when you die?
I think that from a marketing point of view, cash value sweetens the pot. It makes the product much more appealing.
Now people can have their cake and eat it too. They can purchase a policy with a survivor benefit for their heirs. That policy can also have a cash account that is available to them while they are alive. They can use the money to supplement retirement; buy a house; fund a business; and for emergencies
Not only that: the cash receives very favorable tax treatment.
You might ask, “why does the government give such favorable tax treatment to life insurance?”
One big reason is that there is no way on earth that federal and state governments could take care of all the people that benefit from life insurance. It simply could not collect enough money to pay all the windows, widowers, children, businesses, and charities for whom people buy policies.
It is entirely in the government’s interest for people to buy tons and tons of life insurance.
And over time, people have.
The life insurance industry has poured trillions of dollars into the economy so that people can remain self-reliant - and off of government subsidies. The side benefit of a cash account helps make that happen.