Here are some similarities between a mortgage and a life insurance policy:
The Asset
When you purchase a home with a mortgage, you immediately have an asset - the home. When you purchase a life insurance, you immediate have an asset - the death benefit protection.
The Debt
As you buy a home with a mortgage, you acquire a debt - scheduled loan repayments. When you purchase a life insurance policy, you have scheduled premium payment.
The Consequence of Non-payment
If the home buyer misses the mortgage payment, he or she may lose the home. If the life insurance buyer misses the premium payment, he or she might lose death benefit protection.
Value Through Payments
As the home buyer keeps on paying mortgage, home equity is built up. As the life insurance buyer keeps on paying premium, cash value is built inside the policy.
Cash Value as Equity
Through the above comparison, it's obvious the cash value in a permanent life insurance policy is very similar to equity in a mortgage. We will continue to discuss why interest may be charged when access cash value/equity in next blog post .