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The amount that you pay for your premium includes the cost of the pure insurance as well as additional funds that are invested by the insurance company. The insurance contract will guarantee a minimum rate of return on the investments, usually between 4 and 6 percent. The cash value may grow at a higher rate than the guaranteed rate, depending on the financial results of the insurance company’s general asset account.
No income tax is imposed on the income earned by the investments unless or until the policy is canceled. You are able to take out loans against the cash value and the interest you pay on the loans goes back into your account, less a small service charge. If you do cancel the policy, the cash value is paid out to you less a service charge.
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