Cash value is a feature of permanent life insurance, such as whole life. It is a separate value inside the policy that can grow over time, and it is one of the main reasons permanent coverage costs more than term. Understanding what it is, and is not, helps you decide whether it fits your goals.
How cash value builds
A portion of each premium can accumulate as cash value, which typically grows tax-deferred. In the early years, growth is usually slow because costs and fees come first. Over a longer period, the value can build more meaningfully depending on the policy.
How you can use it
- Borrow against it through a policy loan, though unpaid loans reduce the death benefit.
- Withdraw from it in some policies, which can also reduce the benefit and may have tax effects.
- Surrender the policy for its cash value, ending the coverage and possibly triggering taxes.
Read the guaranteed columns
Illustrations often show projected values that are not guaranteed, such as potential dividends. Focus on the guaranteed figures and ask which parts of the illustration are promises versus projections.
Is cash value right for you?
Cash value can support goals like lifelong coverage and flexibility, but it is not a substitute for other savings or investments and it builds slowly early on. It should be evaluated as part of an insurance decision, with a clear understanding of the costs and guarantees.