Important for Insurance Customers to Understand the Definition of Cash Value, Benefits and Types
For most people, insurance is a financial product that must be provided to provide protection against various problems in the future. Of course there are several important things that need to be considered when choosing the best insurance product that best suits your needs. One of them is monetary value or cash value.
In simple terms, present value can be interpreted as the monetary value offered by insurance companies to their clients or customers. That is, the sum insured that can be received by the customer if they experience problems due to risks borne by insurance. Regarding how it actually works, there are some important things that customers and potential insurance customers should understand about the concept of present value. The goal is for them to get the best insurance that suits their needs.
What is the cash value of the policy?
As previously discussed, present value is a term often used in insurance products, especially life insurance. This term refers to the amount of money provided and offered by insurance companies to their customers or policyholders. Present value is one of the policies of the insurance company, so each company has its own rules regarding this matter.
In the event that a risk is borne by the insurance from the insurance company to the customer, this cash value has almost the same meaning as the surrender or cash replacement value. However, in Indonesian this term is often referred to as the cash value of an insurance product.
As with the amount of funds offered, each insurance company also has a policy regarding the process or procedure for declaring this cash value. But what is certain, customers can only claim the benefits of this insurance if they are active and regularly pay insurance premiums according to the terms or insurance contract. Insurance premiums are money that must be paid by the insured to the insurance company in accordance with a mutually agreed upon agreement. Insurance costs are also included in all insurance products and are obligations that must be met by customers.
Funds paid by customers through premiums are then divided into two types of budgets, namely nominal value and cash value. Nominal value is the value that the customer has invested in insurance to cover the risk guaranteed by the insurance.
While present value is an insurance policy, it is the amount of funds in an insurance plan. Therefore it can be understood that the cash value is the right of the policyholder and in certain situations is the redemption value of the policy.
Cash Withdrawal Type
Unlike savings, cash value cannot be withdrawn as cash. However, there are several types or forms of cash withdrawals, including :
1. Standard Withdrawal
The first type refers to the process of withdrawing cash value which is usually carried out by insurance customers. In this way, the withdrawal of funds is tax-free and can be done by requesting a sum of money from the customer. The nominal amount that can be withdrawn must of course be in accordance with the amount contained in the insurance fund value section. If more than the available amount is withdrawn, VAT will be charged to the owner. In the event of a withdrawal, the plaintiff loses insurance benefits whose nominal value is in accordance with the amount of money withdrawn.
2. As a Loan
At the same time, withdrawing the cash value of the loan is not taxed at all, and customers can do it with certain restrictions. The credit limit is the cumulative amount of the cash value allocated for insurance premiums and accrued interest. The owner can make payments as long as he is alive.
Even though withdrawing funds in this way seems profitable at first glance, there are still some drawbacks that customers need to understand. Even though the insurance company is not taxed, it does charge interest on the loan. Failure to pay interest will reduce the death benefit of the policy unless the customer can pay it in full.
There are also cases where the insured dies before the loan is repaid. As a result, the insurance death benefit must be deducted to pay off the remaining loan. The amount of death benefits received by the heirs is not optimal.
3. Termination of the Contract
If the customer decides to cancel the insurance contract, the cash value is taken automatically. However, before declaring the cash value, the face value is reduced by the loan amount if the customer has taken out a loan, or by income tax, ie. income tax
However, if you take this step, the customer will not receive the bonus money they paid. Another drawback is that the death benefit of the policy expires, making the insured ineligible for coverage because the service contract has been terminated.
Benefits of Cash Value
In fact, by using the cash value above there are several benefits that customers can get from this feature. However, this feature can also be used for various things depending on your needs. For example, some people use cash values to save for retirement.
This fund can also be included in the investment stage because the portfolio is relatively safe and stable. Depending on financial conditions or future needs, customers can withdraw this cash value when needed. In addition, some customers often use this feature to increase the death benefit covered by the policy. For example, if the death benefit promised by the policy was initially 200 million and the cash value collected was 100 million, it means that the death benefit received could later increase to 300 million. This of course can be a way to better guarantee the benefits of the heirs.
However, despite the benefits and uses of this cash value, not all insurance companies or services offer this feature. In other words, as a customer, you must first ask the insurer or the seller whether this cash value feature is in the insurance services they offer. So, plans for the use or utilization of these features can be done more optimally.
source : https://www.cermati.com
