Jessica Fox Last Updated On: September 13, 2023

Cash Value Life Insurance Policy

Life insurance that earns cash value is a product that has several benefits compared to the less expensive term life policies that protect for a predetermined amount of time. It is a whole life policy that contains the attractive feature of cash value which the policyholder may borrow against.

The premiums paid into a cash value life policy are apportioned in such a way as to use some of the money to pay for the life insurance benefit and another portion which accumulates cash value with tax free interest. This attractive feature allows the policyholder an opportunity to take a loan against the policy while alive.

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Table of Contents

What Is Cash Value Life Insurance And How It Works?

Life insurance isn’t only a way to spend money: It can also be a vehicle to make money. You just have to know how to use it and, most importantly, which life insurance to choose—namely, cash value life insurance. 

Cash value life insurance refers to permanent insurance policies that contain an investment feature. This investment feature is known as the “cash value” portion of the policy that acts as a sort of forced tax-deferred savings account that you are permitted to access during your lifetime. 

There is no specific, “cash value life insurance policy”. Rather certain permanent life insurance policies have the ability to contain a cash value feature. 

Here are some examples of how the cash value component will work in different types of life insurance policies:

  • Whole Life Insurance: In this policy, the insurance company sets an interest rate for your cash value to accrue. You may also be paid dividends if your policy is from a mutual insurance company.

  • Universal Life Insurance: These cash value policies earn interest at a variable rate that is determined by your insurance provider. 

  • Variable Life Insurance: This policy works similarly to how mutual funds do. Your cash value is invested into sub-accounts offered by the insurer and your cash value will fluctuate based on how those accounts are doing. However, the premiums will remain level.

  • Variable Universal Life Insurance: The only difference between this policy and the previous one, is that the premiums will vary. The extent to which they do so will also depend on the insurance provider. 

  • Indexed Universal Life Insurance: Here, the insurer selects a stock market index to invest your cash value in. Most of these policies contain a floor and ceiling, which act as a minimum and maximum for the size of your cash value account. 

  • Guaranteed Universal Life Insurance: While it is possible to have a cash value component in this type of policy, there will be minimal cash value accumulation.

Your life insurance is able to build cash value as your premiums are divided between your death benefit and your cash value investments. This means that your premiums will be higher (often between 5-15 times higher) in exchange for the benefits of the cash value feature. The premiums will vary between insurance companies, and based on these factors:

  • Policy Type
  • Health
  • Age
  • Gender
  • Hobbies

With some specific cash value insurance policies, you may be paid life insurance dividends. When your insurance company is doing well with their investments, they will share the wealth with you in the form of dividends. How these dividends are paid will depend on the policies and companies, but the fact remains these dividends are an incredible way to access funds when you need them. 

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Accessing Your Cash Value Life Insurance Funds

It’s your money, and you should be able to get to it when you want it. This is why most cash value insurance policies will allow you to access your savings—but it’s not going to be quite as easy as taking money out of an ATM. Rather, you’ll have to go through a bit of a process. 

The following are your options with regards to accessing your cash value life insurance:

  • Withdrawal. Since cash value policies work as a sort of savings account, if necessary, you may be permitted to take out some money from there for some unforeseen expenses you may have. Though it is possible to withdraw more money than you have paid into your account, doing so will be taxable income. Also, keep in mind that withdrawing reduces your death benefit.

  • Taking Out a Loan. If you need to borrow money from your cash value account, that is also possible. You may take out a loan from both the premiums you’ve paid and the interest that they have accumulated. However, your debt will accrue interest, and if you are unable to pay it back before you pass away, then the amount owed is subtracted from your death benefit. 

  • Surrendering The Policy. For whatever reason, you may wish to cancel your cash value life insurance policy. In which case you will get the money that you paid into the cash value policy back. But, many insurance companies have surrender fees that you will be required to pay. 

  • Use Funds to Help Pay Premiums. You might find yourself struggling to pay your insurance premiums. In such a situation, you can inquire with your insurance agent to see how cash value can help pay for your premiums. Just be careful to not use up all of your funds, causing your policy to lapse.

When Cash Value Life Insurance Is A Good Idea?

Cash value life insurance can be a rewarding and beneficial life insurance policy. Here are some situations where a cash value policy may be a good fit for you:

  • You are a high income earner who has already maxed out other retirement accounts. In this case, cash value life insurance can act as an additional tax-deferred savings vehicle.
  • You have a high net worth and wish to build a tax-free inheritance for your children.
  • You have a lifelong dependent who will need extra savings in the event of your death.

So, you can see that while cash value life insurance has many benefits, it is definitely not for everyone. One of the easiest ways to see if it’s for you is to get a quote. We can help. Contact us today for a cash value life insurance quote. 

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No, term life generally has no cash value, other forms of permanent life insurance have the benefit of cash or loan values.
The rapidity with which an insurance policy gains cash value varies greatly. Some policies can take years to accumulate significant cash value others that are structured as investment vehicles can accumulate value more quickly. Total cash value and how rapidly it accumulates should inform your decision making.
Speak with your insurance provider. They will be able to navigate you through accessing your funds and provide helpful advice along the way.
Cash value policies are expensive compared to other life insurance policies. This is because your premiums go both towards your death benefit and your cash value account. The prices vary between providers, but will typically be between 5-15 times higher than the average life insurance premiums.
If you are able to afford it, a cash value policy is great for anyone who wishes to have an extra savings vehicle. Get a quote today to inquire further about their cash value life insurance.


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