Difference between nominal value and cash value life insurance - InsuranceRise

Wednesday, 10 August 2016

Difference between nominal value and cash value life insurance



In life insurance there are two concepts that may be a little complex, but it is necessary to differentiate. It is the concepts of cash value and face value, which make a permanent life insurance. Policies whole life and universal life policies are considered a permanent life insurance, since they provide coverage for life of the insured.

Both the cash value and the nominal value are different in terms of how their amounts are determined. However, both the cash value and the nominal value can increase or decrease the amount payable to the beneficiary after the death of the insured.

Definition of nominal value and actual value


The nominal value is the amount that the beneficiary of the policy or life insurance receives when the insured dies. This is a fixed amount and known from the beginning of life insurance contract that is not dependent on the event years later to occur.

The cash value is the amount that is paid by the life insurance policy if the insurance terminates or is canceled before it happens the event for which he was hired.

By its nature, the concepts of cash nominal value and value can only be a difference in insurance permanent life, either whole life or universal life, because the life insurance term has no cash value. In term life insurance, when the maturity comes when it is renewed for a longer period or other life insurance is contracted in a different insurer, the insured is not entitled to a cash value.


Benefits cash value


One of the advantages of cash value is that it does not fall on deferred taxes, ie not have tax consequences until the funds are not withdrawn. This means that if the insured decides to access funds through a loan to policies, the money will be received tax free and does not have to be repaid.

Another advantage is for the beneficiaries of the policy, they can get higher the death of the insured sum if the policy has additional options associated or if there are no funds in the cash value account.

However, keep in mind that, although the loan policy does not have to be repaid, if outstanding at the time of death, the nominal value of what they charge beneficiaries could be reduced to that amount .

Differences when collecting the cash value universal life insurance and whole life


In whole life policies   the value is paid in cash, plus the face value after the death of the insured.

However, the beneficiaries of universal life insurance can charge in two different ways:


  • Option A: The actual value is not paid, but used to pay the final death benefit. The more money you have in the account cash value, less money will have to pay the insurance to life insurance beneficiaries by the death of the insured. For example, if an insured has a universal life insurance 70,000 euros, 30,000 in the account cash value, the beneficioarios receive 70,000 euros after his death, of which 30,000 will be in the account cash value and 40,000 They would be paid the insurance.
  • Option B: As is the case with whole life policies in option B the cash value paid plus the nominal value after the death of the insured. In this case, life insurance 70,000 30,000 euros in cash value, the insured can choose the cash value add to the nominal value, which would be a benefit following the death of the insured of 100,000 euros.

Most people usually choose option A because although this option provides lower profits to beneficiaries of insurance option B premiums you pay are also lower.
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