Cash value! Sounds good when you say it. If your whole life or universal life insurance policy has performed well it may even be kind of fun to look at, but don’t, I repeat don’t accept their annual invitation to dip into it.

When cash value starts building in one of those policies, you can bet there will be yearly invitations to use it to pay the premium, borrow against it or just take all or part of the cash value out as a surrender. Any of these invitations accepted will likely be the beginning of the end of your life insurance policy and lest you forgot, you bought it because it provided life insurance.

I had a client just recently that had a universal life policy through another agent. The policy had accrued $67,000 cash. The basis, or non taxable portion of that was $33,000. He asked me what I thought about him taking out the $33,000 as a non taxable surrender. His idea was that it still left more than half the cash value intact and that he could keep paying the $1400 per year and the policy would just keep going and going and going.

I suggested he have his agent run a guaranteed illustration assuming that he did exactly as described above. I told him my sense was that the policy would implode in 7-10 years. He emailed me the illustration a few days later and sure enough, cash-value-train-wreck.

The problem with cash value is that it seems to give people a sense of security. Everything must be good if it has cash value. But, buyer beware. Cash value is a sensitive thing and can leave you without insurance and without security.

Bottom line. Don’t buy cash value policies to start with and if you happen to have one already, have it reviewed by an independent agent other than the agent who sold it to you. They have already made their interest clear by selling you the policy.

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