If you are planning to get a cash value life insurance policy you can choose any cash value insurance policy based on your risk aptitude and requirements. Some of the commonly available options are the universal life policies, variable life policy and whole life policies
Universal Life Policies
These cash value policies give you the freedom to adjust the death benefits and the premium every year depending on your requirements. Part of your premium is invested in short-term securities like money market mutual funds which give low but safe short-term returns. The premium that you need to pay each year is flexible and you can vary your premium payment depending on your premium payment capacity. However, if you decide to pay low premiums during the early stages of the policy you may have to pay higher premiums later on.
Whole Life Policy
Another form of cash value insurance policy is the whole life policy. The premium that you pay on whole life policy is invested in safe fixed return instruments like bonds and bank deposits. The returns on the insurance policy are low but free of risk.
Variable Life Policy
The premiums that you pay on variable life policy are invested in bonds, stocks and money market funds. One drawback of investing in variable life policy is that insurance companies deduct sales and other annual expanses which significantly reduce your returns on variable life policies.
If you are searching for cash value policies you need to be careful as these policies are difficult to understand. You need to understand the cost-benefit analysis of the cash value insurance policy offered by various insurance companies. If the insurance agent is promising high returns on cash value life insurance policy make sure you ask the agent the assumptions made to arrive at such high returns. If your agent promises a return of say 12 per cent compounded annually for a period of 20 years find out where the insurance company will invest in to give you such high returns. Check the expenses incurred by insurance companies to earn the returns that they have promised. Also find out what returns you can except if the insurance company gets lower than expected profits on investments made by them. Also find out what are the chances of insurance company giving only the promised guaranteed returns and no additional benefit.
One word of advice though, don’t compromise on the safety of your investment for higher returns on your premium paid. If the insurance company goes bust all your investments will be lost. Check for the safety rating of the insurance company before you pay your premiums.