Cash value life insurance – You should know

Cash value life insurance is a type of permanent life insurance that has a cash value component.

This means that a portion of each premium payment is saved up inside the policy. If you borrow money or take money out of the cash value, you can earn interest without having to pay taxes on it right away. Policyholders can use the cash value for many things, like adding to their retirement income, paying for school, or covering costs that came up out of the blue.

How it Works

It covers the policyholder for their whole life, so it is permanent life insurance. Because it includes cash value, it usually costs more than term life insurance. Part of each premium payment goes towards paying for the insurance, and the rest goes into a cash value account.

Life insurance cash value earns interest, and owners don’t have to pay taxes on the earnings until later. Paying premiums and earning interest adds to the cash value over time. When the cash value of a life insurance policy goes up, the insurance company’s risk goes down because the cash value reduces the insurer’s liability.

The Feature

Here’s a table summarizing the key features:

Type of life insurancePermanent
Cash value componentYes
Tax-deferred growthYes
Death benefitYes
Premium paymentsHigher than term life insurance
ComplexityMore complex than term life insurance
Surrender chargesMay apply if the policy is surrendered within a certain period of time

You can easily understand that. Now, we will talk about benefits and drawbacks.

Benefits :

  • Tax-deferred growth of cash value
  • Access to cash value through loans or withdrawals
  • Death benefit protection for loved ones
  • Potential to supplement retirement income
  • Easily pay for school costs or other unexpected costs


  • Higher premiums than term life insurance
  • Complex product with more features and options to understand
  • Too early surrender of the policy may result in surrender charges.

Why consider it?

It may be a good option for individuals who want a life insurance policy that provides a death benefit and the opportunity to accumulate tax-deferred savings. Or you have the financial resources to pay higher premiums. And you are comfortable with the complexity of permanent life insurance policies. Afterall, you have specific financial goals that they can use the cash value to achieve


Well, paying for cash value life insurance lets policyholders save money for later use. Next, an interest-bearing savings account gets some of each premium put into it. The cash value grows tax-free over the life of the deposit. Finally, the insured can use this money for a number of different things during their lifetime.