Cash Value Life Insurance
Candlefocus EditorA cash value life insurance policy is more expensive than a term life insurance policy, due to the accumulation of money value over time. Generally, cash value life insurance will have a term period associated with it, and some policies may be renewable.
Essentially, cash value life insurance provides a company or individual with a death benefit while also building up a savings component that can be accessed while the policyholder is alive. The cash value life insurance policy accumulates money value over a specific period, usually a number of years, by a combination of interest and dividends. Interest and dividends will vary, depending on the type of policy a policyholder has and the guaranteed rate of return provided by the insurance company.
A policyholder can access the cash value of their life insurance policy in two ways.
The first way is to take out a policy loan. Most life insurance policies enable policyholders to borrow a percentage of the policy’s cash value at a low rate of interest. The rate of interest on policy loans can be quite low, and the policyholder is not required to make payments on the loan. The loaned money does not need to be repaid; instead, it will be deducted from the death benefit when the policyholder dies.
The second way to access the cash value of a life insurance policy is to surrender the policy for its cash value. Policyholders who surrender their policy for its cash value receive the accumulated cash value of the policy minus any outstanding policy loans.
In summary, cash value life insurance is a type of permanent life insurance policy which offers a guaranteed death benefit while also accumulating money value over time. It is more expensive than a term life insurance policy, but policyholders can access the money value of the policy while they are alive either by taking out a policy loan or by surrendering the policy for its cash value.