Life Insurance Policies and Cash Value

Many permanent life insurance policies build cash value over time. Here's how it works and what you can do with it.

What Is Cash Value?

Cash value is a savings component that accumulates inside a permanent life insurance policy. A portion of each premium goes into this account, which grows tax-deferred over time. You can access cash value through policy loans or withdrawals while you're alive.

How Cash Value Grows

• Whole Life: Grows at a guaranteed rate set by the insurer, plus potential dividends
• Universal Life: Grows based on a declared interest rate (with a floor)
• IUL: Grows based on a stock market index with floor and cap
• VUL: Grows based on investment sub-account performance

Ways to Use Cash Value

• Policy loans: Borrow against your cash value at low interest rates. Tax-free if the policy remains in force.
• Withdrawals: Take money out (up to your basis) tax-free. Reduces death benefit.
• Pay premiums: Use accumulated cash value to cover future premium payments
• Surrender the policy: Cash out entirely (taxable gains above basis)