What Is Cash Value Life Insurance? How Does Life Insurance That Builds Cash Value Work? (Calculator)

Shawn Plummer

CEO, The Annuity Expert

If you are looking for a life insurance policy that builds cash value, you have come to the right place. This guide will discuss the different types of cash-value life insurance policies and provide tips on finding the best policy for your needs. So, whether you are just starting your career or nearing retirement age, there is sure to be a life insurance policy that fits your needs!

What is Life Insurance Cash Value?

Most life insurance policies have a cash value component. This cash value is the policyholder’s savings account within the life insurance policy. The money in the cash value account grows tax-deferred, which means that the policyholder does not have to pay taxes on any of the earnings within the account until they are withdrawn.

The cash value can be used for various purposes, such as supplementing retirement income, paying off debt, or covering unexpected expenses.

Two main cash-value life insurance types are whole life and universal life.

Whole life policies have a guaranteed death benefit and cash value growth, while universal life policies offer more flexibility in both the death benefit and the cash value growth.

Withdrawals from the cash value account will reduce the death benefit and may also result in surrender charges, so it is essential to consult a financial advisor before taking any money out of the account. However, the cash value can provide policyholders with valuable peace of mind knowing they can access funds in an emergency.

A retirement income policy is another term referring to cash-value life insurance.

Here are the different types of permanent life insurance policies:

Which Life Insurance Policy Does Not Have Cash Value?

Term life insurance is one of the most popular types of life insurance policies, and for a good reason. It is typically more affordable than other types of policies and offers coverage for a set period of time, which can be ideal for young families or people with debt.

However, one downside of term life insurance is that it does not have cash value. If you cancel your policy before the end of the term, you will not receive any money back. In contrast, whole life insurance policies have cash value, which can be accessed if you cancel your policy early.

What Is Cash Value Life Insurance Designed For?

Cash value insurance is a way to build money over time in your policy. In many cases, you can take out the money you’ve built up as a loan or withdrawal. You can also use it to pay your policy premium payments later.

Components Of A Cash Value Life Insurance Policy

Cash value life insurance is only available in a permanent life insurance policy. Permanent life insurance policies offer two components:

  • Death Benefit: “Face Value” is the amount paid to beneficiaries when the insured person passes away. This is the life insurance payout.
  • Cash Value: an additional feature that might make your policy more valuable because you may be able to access the money while you’re still alive.

How Does Cash Value Life Insurance Work?

A cash value policy’s premiums are usually set at a fixed rate or grow based on an external stock market index such as the S&P 500. A portion of your premium payment creates the policy’s death benefit. Another part is used to maintain the cash value of your insurance.

Usually, the cash value of a life insurance policy starts to grow after two or five years. Once it grows, you can generally access it according to the policy’s guidelines.

Your policy’s cash value is only available to you while alive. The death benefit will be paid to your beneficiaries if you die. If any cash value remains, it will return to the life insurance company.

How Can I Withdraw Cash Value From Life Insurance?

Since you can only use the cash value of your life insurance policy while living, it is essential to use it. Here are four ways you may be able to access its cash values:

  • Make a withdrawal from the accumulated cash value
  • Take out a loan
  • Surrender the policy
  • Use the cash value to help pay premiums

Withdrawing Money from your Cash Value Policy

With universal life insurance, you may be able to take some of the cash value out as a partial withdrawal. However, with whole life insurance, the only way to access the cash value without canceling the policy is by taking out a loan from the insurance company.

Taking Out a Loan on Your Policy

Cash-value life insurance policies can let you borrow money to pay a home mortgage early, cover a child’s college tuition, or go on vacation. However, if you don’t pay the loan and all interest back before you die, your death benefit will be reduced by the amount of the loan and any fees. In addition, loan money is not considered taxable income.

Surrendering Your Life Insurance Policy for its Cash Surrender Value

A “surrender” is when you cancel your policy, and in return, you receive the life insurance cash surrender value. When this happens, you no longer have life insurance coverage. Your ” equity ” will be the amount of money you paid into the account, and interest that has added up over time will be your “equity.”

Fees When Surrendering Your Life Insurance Policy

  • Any outstanding loan balance or unpaid premiums on the policy
  • Additional surrender fee
  • Income tax on the money you receive.

Increase The Death Benefit or Pay The Premiums

You can use your cash value balance to help pay for your premiums or ask to increase your death benefit.

A cash value policy will give you multiple options for what to do with the money you save over time. You can use it for yourself during your lifetime or leave it to your heirs after you die. This policy also provides a significant death benefit for your loved ones.

Which Type Of Life Insurance Policy Generates Immediate Cash Value?

Whole life insurance is the type of life insurance that generates immediate cash value. Universal life, indexed universal life, and variable universal life insurance policies generate cash value, but whole life insurance generally has the most flexible options and features for cash value accumulation. From a policy standpoint, whole life insurance is the simplest form of permanent life insurance. Whole life insurance has level premiums and guaranteed death benefits as long as the policy remains in force.

Cash Value Life Insurance Calculator

Use our free calculator to estimate your permanent insurance needs.

Next Steps

Cash-value life insurance policies may be the right option if you want a permanent life insurance policy with a savings component. These policies can grow a lot of money over time, and if you are healthy and under the age of 35 when you buy one, you will have access to that money should you need it. Request a quote below to learn more about cash-value life insurance policies. Contact us if you need help purchasing life insurance.

What Is Cash Value Life Insurance, And How Does The Policy Work? (Calculator)

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Frequently Asked Questions

What types of life insurance build cash value?

Cash value is a standard variable, whole, and universal life insurance feature. Term life insurance does not have cash value.

Who offers the best life insurance with cash value?

Protective whole life insurance and North American Indexed Universal Life Insurance offer the best life insurance with cash value due to growth ability and the company’s A+ (Superior) rating with A.M. Best.

What is the cash value of a $10000 life insurance policy?

The cash value of a $10,000 life insurance policy depends on the type of policy and the insurer. Whole life policies generally have a higher cash value than term life policies, and older policies tend to have a higher cash value than newer policies. The cash value of a life insurance policy is usually equal to the death benefit minus any outstanding loans or other debts against the policy. Some insurers charge a surrender fee if the policy is cashed in early. To get an accurate estimate of the cash value of a life insurance policy, it is best to contact the insurer directly.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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