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In addition to life insurance, life insurance offers a variety of benefits. We can offer policyholders and beneficiaries depending on the type of insurance you choose. Permanent or whole life insurance, for example, offers a cash value component called cash value life insurance. Cash value life insurance essentially functions as an interest-bearing savings or investment account, which is funded by premiums.

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Whole Life Insurance Combines life insurance and investment elements.

  • Whole life insurance
  • Premium paid Tax Deferred Savings Benefits, if
  • Three variations of whole life insurance: whole life insurance, universal life insurance and variable life insurance include an investment component

<Term life insurance is exactly what the name suggests. Insurance suitable for specific situations.

  • Term premium
  • No savings benefits
  • No refunds if subscription period expires or subscription is canceled

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The unique advantage of cash value life insurance is that it is typically the ability to withdraw or loan from a cash value account while you are alive. It is possible to withdraw money in the form of However, while the cash value account feature may be attractive, this type of policy is not for everyone.If the idea of ​​getting a life insurance policy with cash value intrigues you, , here's what it is, how it works, and the types of insurance that exist.

How Cash Value Life Insurance Works

Cash value life insurance has a death benefit component that works like any other life insurance policy. This death benefit is paid to the beneficiary upon death.

However, the cash value component works differently. You pay a monthly premium and part of the payment is diverted to another savings or investment account. This money can be used by withdrawing funds, taking out loans, waiving policies, or using it to pay insurance premiums.

Money you pay for premiums goes into the following categories:

  • Premiums: part is paid.
  • Overhead and Fees: You will also pay insurance company operating costs and fees associated with your cash value account, just like any other investment account.
  • Cash Value: A portion of the money is diverted to a savings or investment account associated with the Cash Value Policy.

Cash Value Life Insurance Types

If you are looking for a cash value account to enhance your life insurance policy, you may be wondering which policy types you can choose from. Thankfully, you can get cash value life insurance in several policy types.

  • whole
  • variable
  • universal
  • variable universal
  • indexed universal

Understand the differences and choose the insurance that's best for you.

Whole life insurance

Under the cash value policy of whole life insurance, the premium remains the same for the life of the policy. A small percentage of the premium is deposited into your savings account to accumulate interest. The rate of return on this account varies from company to company, but is typically around 2%. You can usually use the funds in this account before your death.

Variable Life Insurance

Unlike whole life insurance, variable life insurance lets you choose how you invest your accumulated cash. Instead of keeping it in a savings account, you have a few more options. For example, you can invest in stocks and bonds.

However, this type he has two disadvantages. First, you have to understand what you are doing. Variable life insurance has higher fees than full and universal cash value life insurance.

Universal Life Insurance

Universal life insurance gives you some control over how much you pay for your premiums. For example, if the month is going well, you can pay more than usual and put the surplus into your savings account. Similarly, if one month is just a little short, you can use your savings account to pay your monthly insurance premium.

To further complicate things, there are three types of universal life insurance. There are guaranteed universal life, index universal life, and variable universal life. Depending on which type you choose, the monthly accumulation method will change.

Variable Universal Life Insurance

Variable Universal Life Insurance puts a portion of your monthly premiums into an investment account. The premium you pay is flexible. This means that you can direct more money to this account every month if you want. However, please note that these policies usually have upper and lower limits on the returns you can receive.

Indexed Universal Life Insurance

In addition to your death benefit, Indexed Universal Life Insurance allows you to put a selected amount into a fixed or stock indexed investment account. increase. that can earn interest.

Life insurance cash How to Use Value

If you want to use your cash value account before your death, you can do so in the following ways.

  • Do a partial withdrawal:You can withdraw money directly from your Cash Value account, but there are pitfalls. Doing so will reduce the amount your beneficiaries will receive when you die. It's the money you deposit, but if you use it, your life insurance premium will go down.
  • Loan: You can take out a loan against the cash value of your savings. However, please consider this. You're borrowing your own money into debt and paying interest on top of that.
  • Pay premiums: Pay with the amount you have saved. for monthly premiums. Depending on your life insurance company, you may be charged a cancellation fee.
  • Selling Insurance: Once your children are all grown up or you no longer need life insurance, you can sell your insurance and pay for it in cash. The agent who set up your insurance will receive a reduction from your settlement.
  • Surrender your policy: Instead of selling your policy, you can cancel it. The cash value we have built up over the years is given to you after many fees have been deducted. If the value of your cash exceeds the amount you paid in premiums over the years (which is unlikely), you will be taxed on the profits you have made so far.

Pros and Cons of Cash Value Life Insurance

Pros Cons
Can be used from your Cash Value account for the rest of your life. You must pay the fees associated with your Cash Value account.
Earn interest with your Cash Value Savings account. Earning limit
Cash value investment account you can earn money. When you withdraw money from your Cash Value account, your death benefit is reduced.
You can spend more money on premiums by overpaying. Your Cash Value Account


Cash value life insurance It is ideal for those who want coverage in addition to the death benefit provided by . Cash value insurance allows you to earn interest or earnings on your money. You can also usually withdraw some or all of your money before you die.


Cash value accounts typically cap returns. These accounts often have high fees, and withdrawing money from the account before death reduces your death benefit. For these reasons, some people may prefer to invest their money in mutual funds separately from life insurance policies to avoid these effects.

Frequently Asked Questions

    • What is the death benefit?

      Life insurance death benefit and cash value treated differently. Unlike a death benefit, which is paid to the beneficiary after death, the cash value of life insurance is not paid to the person you designate as the beneficiary. The money accumulated in the cash value account over the years is instead held by the insurance company.

    • Can I withdraw cash value from life insurance?

      Yes, if you have cash value as part of your life insurance policy, you can use the cash value savings account You can withdraw part of the money from If you withdraw more money than you put in (that is, you withdraw more money than you put in), the money you withdraw will be taxed at your normal income tax rate. Additionally, your death benefit will be reduced by the amount you withdraw (whether or not you make a profit).

    • Do I have to pay back cash value withdrawals?

      Death If you don't want to reduce your insurance, we will refund the amount you withdrew. If you don't mind a reduced death benefit, you can withdraw the amount you have in your Cash Value Savings account.

    • Does guaranteed life insurance have a cash value?

      Yes , a life insurance policy issued with a guarantee has a tax deferred deposit account.