by Tom P. Smith Jr.
Executive Vice President
(Agencies and Marketing)
One of the many elements of permanent insurance – whole life for example – is the accumulation of cash values within the policy. While we never run around recommending that these values be withdrawn, or borrowed, the fact is they are available. When you borrow against the cash in the policy, you diminish the value of the policy until the borrowed funds are returned. But when I talk with members about the features of permanent life insurance, I certainly include this feature in the conversation.
When you pay your permanent life insurance premiums, the policy begins to accumulate a reserve – usually not until the policy is in force for a couple of years. The company sets aside this reserve, which gradually and over time grows, depending on the size of the policy and the premiums paid.
During the life of the policy – and your life – this cash value is always available to you. When you talk about it with your agent, he will help you determine how much is available, always keeping in mind that we want the policy to remain in force (so you should never take out 100% of the cash and cause the policy to lapse). He will then work with you to complete the necessary paperwork that would be forwarded here to New Haven where the request is processed promptly. The cash is usually delivered quickly and with no questions asked. The agent will also strongly suggest a repayment plan, so that, over time, you can restore the cash value to its full amount for two reasons: first, so that the policy returns to full value should death occur, and so that the cash is there for you again should the need arise.
This column is not usually used for lessons in how life insurance works, but this is a critical issue. With so many credit outlets tightening the reins, and money becoming harder to find, borrowing against a permanent life insurance policy can be an attractive option when a financial emergency occus. If you have found yourself wondering where you can get the money you need to a) fix the roof; b) fix the furnace; c) fix the car; or d) fill in the blank, permanent insurance could have been the solution.
There are lots of features that distinguish permanent insurance from term insurance. The accumulation of cash value, which can be accessed and used in the event of an emergency quickly and painlessly, is just one. When your agent talks to you about the value of whole life, remember this: permanent, cash value, level premium life insurance is a unique product. I can think of no other financial product – none – that does what it can do, including helping your family out during a financial emergency.