If you're looking to protect your family in the event of your sudden death, you've probably thought about taking out a life insurance policy. However, the life insurance industry is incredibly complicated. With dozens of different types of policies on the market, it's difficult for the average life insurance consumer to make a rational purchasing decision. Since life insurance is a major obligation, poor decisions can have serious financial ramifications.
If you want a life insurance policy that you can "cash out," you'll need to purchase a whole life insurance policy. Unlike term life insurance, whole life insurance doesn't expire after a fixed period of time. Rather, it steadily builds up a cash value that can be "surrendered" in exchange for cash payments. Although you won't be able to cash out your policy right away, you should be able to access its cash value within 15 years of its initiation.
Your whole life insurance policy's "cash out" value is also known as its "available partial surrender value." When you look at your policy's statement, you'll see a line that's marked with this term. The "available partial surrender value" amount indicates exactly how much you're entitled to receive in the event that you cash out your life insurance policy. This amount grows with each monthly premium payment that you make. Over time, it may exceed the total value of the premiums that you've paid on the policy.
However, it's important to note that the "available partial surrender value" won't grow as quickly as many other long-term investments. For this reasons, most financial experts caution against using whole life insurance as a retirement vehicle. What's more, many financial experts advise against cashing out a whole life insurance policy. After you cash out or "surrender" your policy, its beneficiary will no longer be entitled to its death benefit. This could deprive your family of a crucial long-term income stream and cause serious financial problems. Unless you're faced with a life-threatening emergency and have no reserves of savings aside from your whole life insurance plan, you should resist the urge to cash out your policy.
Although there are some situations in which it makes sense to carry a whole life insurance policy, you might earn a higher rate of return on stocks, bonds or mutual funds. According to some financial experts, whole life insurance policies appreciate at a rate of just 2 percent per year. By contrast, some mutual funds appreciate at better than 10 percent per year.