Is Cash Value Life Insurance the right move for you?

I started looking into Cash value life insurance (CVLI) policies as an addition to my financial portfolio. I first came across this when I spoke to a financial advisor to see if there’s anything else I am missing in terms of setting up my retirement plan and just finding more ways to make money work harder for me. I came to find that CVLI may not be suitable for everyone due to many reasons I will discuss below. 

Here is a quick breakdown of the pros and cons of CVLI vs TLI(Term Life Insurance):

	CVLI
PROs	Lifetime Coverage (CAVEAT! - so long as you don't miss a payment)
	Cash Value Accumulation - includes a savings and investment component that you can access through loans or withdrawals.
	Predictable premiums - some CVLI such as Whole Life have fixed premiums.
	Estate Planning - offers a tax-advantaged wealth transfer to beneficiaries.
CONs	Higher Premiums - less affordability
	Complexity - most individuals need help navigating these complex investment components.
	Opportunity cost - the returns may be lower than other alternative investments depending on market and economy status.
	Limited Flexibility - death benefits will reduce if the policy holder accesses the cash value for a loan/withdrawal.
	TLI
PROs	More affordable, because premiums are lower but can have a higher coverage.
	Straightforward, easy to understand for most people.
	More flexible in terms of including coverage for mortgage and income protection during working years.
CONs	Premiums paid do not contribute to savings accumulation.
	Premiums can increase during renewals.
	Coverage is limited to the term that you choose. If you pick 30 years and you outlive that 30 years, your renewal price will most likely increase substantially because you are 30 years older and possibly have more health issues.
	There's no estate planning benefits with TLI

CVLI may work for you if you have a pretty substantial estate that you want to pass down to your heirs when you pass away. This greatly benefits your heirs not only because of the wealth accumulation overtime due to the saving and investment aspects of this plan but also because it is tax-advantaged. Your heirs do not have to pay taxes on their inheritance. You also can take out loans from your policy tax-free. But, if you do not have dependents or heirs, this may not be suitable for you. You’re better off putting that money on other investment vehicles that could yield higher returns with minimum to zero fees. CVLI’s premiums can be anywhere from $700-$1000/month depending on the plan. What’s worse is a lapse in premium payment can terminate your coverage and you may be subject to surrender charges and fees. If all you really want is a death benefit for your family, then term life is a better option for you. 

After considering all the options, I personally chose to forgo a CVLI. I like to keep my investments and life insurance policies separate. The high fees/premiums do not make sense to me, because I instead use that to make other investments that do not have fees or restrictions. I also am an active investor, so I personally want to be involved in making decisions on where the money gets invested. I hope this helps you understand whether CVLI or TLI is a better option for you.

That is all for now. 

See you on the next one!

-Pam

As a reminder, I created this blog to share information and to increase everyone's financial literacy. This serves as my notebook that I willingly share publicly to help others increase their curiosity and knowledge in wealth building and money management. I am not an official financial advisor, lawyer, or accountant. You will not find legal advice in this blog. Read the full terms and conditions here.