Cash Value Whole Life insurance is one of the most misunderstood financial tools (by financial advisors as well as the general public), so we wanted to clear up some common misconceptions about the unusual benefits provided by this unique financial vehicle. There are many different types of life insurance, but the most commonly used are Term Life, Whole Life, and Universal Life.
Cash Value Whole Life insurance is one of the most misunderstood financial tools (by financial advisors as well as the general public), so we wanted to clear up some common misconceptions about the unusual benefits provided by this unique financial vehicle.
Universal Life is also quite popular, but due to its potential variability in both growth and premium costs, we don't usually suggest this vehicle as a financial planning tool except in very specific cases. You can learn more about the differences between Universal Life and a properly structured cash value Whole Life insurance plan here.
In this article, we will be discussing cash value Whole Life Insurance, which is often the subject of much confusion. Just to be clear, we are focusing on cash value Whole Life insurance from a non-direct-recognition, dividend-paying mutual life insurance company. (It's no surprise that confusion abounds about these types of insurance plans, as they are so often called by various mysterious-sounding names, including 770 accounts, "Rich People ROTH" accounts, 501k plans, 702j plans, Infinite Banking®, and most popularly, Bank On Yourself®.)
When properly structured using an appropriate insurance company, these types of policies can provide many useful benefits that are difficult (or impossible) to find in other financial vehicles. When set up and used correctly, Bank On Yourself-type policies can offer the combined benefits of the safety of a CD with the liquidity of a savings account, the tax benefits of a ROTH IRA, and conservative but respectable long-term growth.
Other potential benefits may also be available through riders that you can add to the policy for an additional cost, such as long-term care benefits, children's or spousal insurance riders, and others.