How come my health insurance doesn't build cash value?
How come my auto insurance doesn't build cash value?
Why does life insurance build cash value? Life insurance a scam?

Not ALL life insurance builds cash value. There's pure insurance, like term, that does not. The ones that build cash value, well, you pay 10X as much for them!! and 10% of what you pay in, goes to cash value, AFTER you've held it a few years.

Cash building policies, or "investment" policies, are a gimicky way to sell life insurance, MOST of the time (but not all). They are NOT the cheapest way to invest, or to save. To put it mildly.

ps. Avald, if that's the SHORT answer, I don't think I'm up to the long one, LOL.

If you had an HSA health plan, you do have health insurance with cash value. If you don't use the money in your HSA, it rolls over to a qualified account at 59 1/2. Does that mean it's a scam?

It's a pretty bad assumption to say that because you have cash value, it's a ripoff. The cash value just reflects the liquidity of your policy at any point in time if you wanted to make a change. Most people consider liquidity a good thing over the alternative.

There is a problem with agents selling protection vehicles for the purposes of liquidity.

If you really have a need for permanent life insurance, but want absolutely hate any cash value in the policy, set up a non-qual side fund that you control and just pay the costs of the life insurance policy each year from that pool. This is what third-party investors do when they buy life insurance policies. If you live more than, say, 5 years, this will be cheaper than buying yearly renewable term. Plus it will allow you to continue coverage beyond age 85 (where most level term ends).

If you don't understand what I said, go talk to an agent who does or 2 or 3. It's your money.

When we talk about cash value we are talking about whole life, universal life, variable life and variable universal life insurance. There are two parts to the insurances that accrue cash value.

First, when you pay your premium part of your money goes towards the cost of the insurance. By this I mean if you buy 100k coverage of any the above insurances, the insurance costs a certain amount. Wholelife policies have level term insurance, meaning that the part of premium that goes to pay cost of insurance today, will be the same when you reach age 99. We will say $100/month is premium. You get 100k coverage. Cost of Insurance is $40, the rest will pay commission and fees and after that what is left over will go to savings acct. All the other insurances mentioned above, also split their money in two ways. All these others insurance is increasing term insurance. Each year you get older, you will pay more for the insurance until the cost of insurance exceeds the premium. At this point, the company takes money from your savings to pay the difference. Your cash value will self destruct and, at that point, you have NO insurance unless you pony up beaucoup money.

The other place your premium is split to is towards a savings acoount.

But to answer your question shortly, life insurance builds cash value to pad the pockets of the insurance company and to pay the commissions of the agent who sold you this "trash" value policy.

Its because the life insurance industry is trying to make cash value life insurance look good to the consumer when it's really isn't.

It benefits more to the life insurance company because they use the cash value and invest it for themselves. Just like you put money in the bank, the bank lends it out to people or they invest it. But the difference between a bank and a life insurance company is that if you want to take money out from your life insurance policy, you have to borrow it and interest will be charged on the loan. In most policies, if you die, you lose all the cash value.

No agent is going to tell you this because if you knew the truth, you wouldn't buy it. An agent will say lots of misleading information to convince the consumer to buy it. They will say that your "cash value grows tax-deferred." You know why it grows tax-deferred? Its because you are getting a loss in your investment. Do you know that in most policies, no cash value grows in the first two years?

They will say "its a great investment." Of all the life policies I seen, I have not seen a single life policy that has generate a rate of return greater than 6% and that was a variable universal life policy. But the investment in that variable universal life policy actually had an average rate of 10%. I compared it to when the policy was enforced to the last ending balance date. The reason why its that way because life insurance companies charge bunch of fees on their policies. If you kept the same investment outside of the life insurance policy, you would get 10%.

Anyway life insurance isn't a scam. They do pay out death claim as long as the policy is still enforced. Its the cash value life policies that are ripoffs. Why pay for two things and only get one back?

Avald is the only one that tell the true about cash value life insurance, hope people learn that, I personal believe, not all the insurance agent or financial adviser know very well on all insurance company product, if does, they will find out Massmutual 10 payments life insurance policy cash value power, and they will no longer saying buy term life and invest the different.

no cash value term life is just like rent the house, you don't own the house, and the rent will be a lot higher later years, ask you self, do you want to own or rent, of cause not all cash value policy are good to buy, the only cash value policy you can buy is whole life policy from mutual life insurance company.

You never buy VUL cash value policy, this type of policy just life term life, cost of insurance will a Lot higher when your in retire age, agent will told you, your cost of insurance pay only from face amount minus total cash value, that way your cost will a lot lower, the key is, when you need money and loan out from cash value money, then your insurance will become higher, mean you can not touch the cash value.

Mark S

What happens when I buy a VUL policy ($100,000 face amount) and after a couple years the cash value of my policy spikes up to $91,000? At that point, I become very conservative with the investment selections so as not to lose any cash value. What happens to the charges that the insurance company deducts from my Cash Value?

When you understand this, you will have a better understanding of the way cash value insurance works.

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