What Is an Add To Cash Value Option?

The add to cash value option is available on permanent life insurance policies that earn dividends. You can use this option to reinvest the dividends back into your policy rather than collecting the money as cash. Using this option can build your life insurance savings by more for the future. Here's how it works.

How Add To Cash Value Options Work

Cash value life insurance is a form of permanent insurance with a savings component. Holders of cash value life insurance pay premiums for their insurance coverage. A portion of those premiums is directed into a 澳洲幸运5官方开奖结果体彩网:cash value account. This cash value can then be invested by the insurance provider on the policyholder’s behalf, accumulating interest and dividends in the process. The policyholder can use the cash value in their account in various ways, such as for paying the policy’s premiums, or as a source of 澳洲幸运5官方开奖结果体彩网:collateral for loans.

Some life insurance companies pay dividends to policyholders. They do so when they collect more premiums throughout the year than they pay out in benefits. You can collect the dividends immediately as cash or use them to cover your insurance premiums.

To help build cash value more quickly, policyholders can also opt to have the 澳洲幸运5官方开奖结果体彩网:dividends earned on their policy automatically reinvested into the account’s cash value. Although this decreases the income paid to the policyholder in the short term, the compound growth on this additional cash value can benefit the policyholder in the medium or long term.

Should You Use the Add to Cash Value Option?

Ultimately, the decision of whether to exercise the add to cash value option in a life insurance policy depends on such factors as your short-term cash flow needs and your other investment opportunities. If you need money right away, you might prefer cash🎉ing out your policy dividends. The cash dividends would also give you money for other investments.

On the other hand, using the add to cash value option allows you to keep building savings through your life insurance. The policy's cash value grows on a tax-deferred basis, so reinvesting dividends further leverages this tax advantage. The add to cash value option is also simple. You automatically save the dividends and have no temptation to sp💎end the money. A financial advisor can help you determine the best overall use of your pol🅺icy dividends.

Rea🔯l World Example of an Add To Cash 🎐Value Option

Michaela is a young professional who recently purchased life insurance. Under the terms of her insurance contract, a portion of her monthly insurance premiums accrue to a cash value account that is managed on her behalf. The insurer invests this cash value in various 澳洲幸运5官方开奖结果体彩网:investment vehicles, with the intention of growing it over time.

Because she is in her early 30s, Michaela has a long-term 澳洲幸运5官方开奖结果体彩网:investment horizon. Therefore, she decides to exercise the add to cash value option in her insurance contract, allowing the dividends earned on her cash value account to be r🍎einvested into the policy. Her intention in doing so is to allow the policy’s cash value to grow more quickly in the medium and long term. 

Eventually, Michaela can benefit from this enhanced cash value through actions such as borrowing against the cash value, withdrawing the cash value, or using the cash value to pay some or all of her monthly insurance premiums.

Add To Cash Value Option for Universal Life

澳洲幸运5官方开奖结果体彩网:Universal life insurance also offers a death benefit option sometimes referred to as "add to cash value" which c♈arries a different meaning than is described above. Universal life provides two primary options for how the will be calculated ꦏwhen the insured passes away.

The level death benefit option (sometimes called Option 1 or Option A) only pays your beneficiary 澳洲幸运5官方开奖结果体彩网:face amount of the policy plus proceeds from any applicable riders. Option 2 or Option B, is sometimes called the add to cash value option. When the insured dies, the amount of the remaining cash value is added to the death benefit paid to the beneficiaries.

The Bottom Line

The add to cash value option pﷺrovides a simple method for policyholders to increase the cash value of their life insurance policies by reinvesting their dividends back into the policy. Like any decision, there are tradeoffs. Policyowners should weigh the returns they would get by adding their dividends to the cash value aga🧔inst using the money for other investments.