Did you know that 54% of Americans own a life insurance policy, but one-third don’t fully understand how it works? Your life insurance policy is what would help support the financial losses your family would face if something were to happen to you.
There are keywords you will hear when it comes to life insurance, from whole life insurance policy to paid up status and paid up additions.
Keep reading and we will go through and explain the life insurance dictionary and what happens if you cash in a paid up life insurance policy.
What Is a Life Insurance Policy?
Life insurance is a contract. If anyone depends on you financially, it is a smart decision to get life insurance. If you’re a husband, wife, or parent and have kids, you need life insurance in case something happens to you, so they have money to live.
Even if you are an ex-husband or wife, life partner, the brother or sister of a dependent adult, an employee, or a business partner, you need life insurance. Life insurance compensates those that depend on you for money.
Life insurance policies are strategic. They help your family cover the costs of final expenses, debts, mortgages, planned education (from kindergarten to college), and lost income.
Life insurance is a contract. It’s between a life insurance company and someone who financially provides for another person or multiple people. The necessity behind life insurance is you can’t predict the future. Life insurance provides a security blanket to your loved ones in case something happens to you.
There are different types of life insurance and other strategic reasons behind getting a policy.
What Is a Whole Life Insurance Policy?
There is a type of life insurance policy called a whole insurance policy. This offers life insurance coverage for the entire life of the person that’s insured. The death benefit value is guaranteed for whole life insurance, as long as you continue to pay the premiums, which stay level.
The whole life policies build up a cash value that isn’t taxed as the worth builds up. This becomes savings over the life of the policy and continues to build with the premiums you are paying. If you give up the policy early, you are entitled to part of the cash that’s been accumulating as savings.
Dividend-Paying Whole Life Insurance Policy
Dividend-paying is when someone buys a whole life insurance policy they invest money in the life insurance company to help them grow.
These people receive money from the life insurance company in dividends, or a routine sum. They are being paid back for their investment in the life insurance company.
Paid up Life Insurance
There are two forms of paid up life insurance that come from a whole life insurance policy.
Paid up Status
You move to this status when you can change your whole life insurance policy to a paid up policy. This lets you keep your policy without having to pay the premiums.
So, if something were to happen, your family would still receive a portion of your death benefits, but you will not have to continue to pay the premiums.
Paid up Additions
This is when you use the dividends that the policy earns to purchase additional coverage and grow your cash savings value. These are an investment and for people who are looking for safe tax growth. You can also increase the life insurance policy growth with paid up additions.
There are ways to get money back and cancel your policy if you have a whole life insurance policy, the first way is you can take out a loan against the policy, the second is you can surrender your policy, and your insurance will give you a check.
You can also sell your policy, but it is not likely that you will get the full value of the policy back.
Though there are three ways to get cashback on your life insurance policy, we don’t recommend going about any of these methods.
Should You Try to Get Money Back on Your Life Insurance Policy?
There are the three ways we went over where you can get money back on your life insurance policy after you pay your premiums. It may seem appealing if you are healthy and need money, most people would not recommend that you go down this route.
Trying to get your money back can get complex and confusing. You may have to pay more out of pocket to try to get the money back, and you won’t always get the full amount of coverage that you bought. Also, the people that financially depend on you might not receive the money they need to survive when you pass away.
You also completely lose your coverage, and it will most likely cost more money to go back later and try to get the same amount of coverage. There is a lot you should take into consideration before canceling your policy and trying to get money back.
The most important part to consider is that if something happens to you, your loved ones may not be covered. They may face financial strain or not be able to live after you are gone.
Review Your Life Insurance Policy
Now that we’ve gone through the important parts of a life insurance policy, you should sit down and review your current policy. You may have a whole life insurance policy and cash savings or you may see now there are ways you can enhance your policy.
Make sure that your family is covered if something were to happen to you and set them up for success and financial stability. The most you can do for them when you’re gone is through life insurance, which is why it’s so important.
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