Cash Value
Plain English
Cash value is money that builds up inside some permanent life insurance policies, like whole life. Part of what you pay goes into it, and it grows over time. You may be able to borrow against it, or get it back, minus loans and fees, if you cancel the policy. Term life policies don't have cash value.
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Definition
Cash value is the savings component of some permanent life insurance policies, such as whole life. Part of each premium goes into an account that grows over time at a fixed or variable rate. The policyholder may be able to borrow against it, withdraw from it, or receive it, less loans and fees, if they surrender the policy.
Why It Matters
Cash value is a big part of why permanent life insurance costs more than term. Understanding it helps you compare the two, and know what you'd get back if you cancelled.
Real-World Example
Imagine someone has a whole life policy that has built $12,000 of cash value over 15 years, and owes $2,000 on a policy loan. If they surrender the policy, they'd receive roughly $10,000, less any surrender charges, and the death benefit would end.
Common Misconceptions
- Assuming cash value is added to the death benefit; on many policies it isn't.
- Assuming term life builds cash value.
Key Takeaways
- Texas Department of Insurance: "A portion of each of your premiums is put into an account, known as the cash value. The cash value grows at either a fixed or variable interest rate."
- Washington's commissioner defines it as the amount due "who requests the insurance company cancel their life insurance policy, less any loans or surrender fees."
- Loans against cash value can reduce the death benefit if unpaid.
- Term life insurance doesn't build cash value.
Frequently Asked Questions
Can I borrow against cash value?
Many permanent policies allow it; unpaid loans generally reduce the death benefit.
What's it commonly confused with?
The death benefit, which is what beneficiaries receive.
Related Terms
Related Coverages
- Life Insurance
Explore the rest of the Life Insurance category.
Browse Life Insurance terms →Sources
The factual claims on this page were checked against these sources. Rules and figures change, so check the source itself if you need to confirm the current version.
- Life insurance guideTexas Department of Insurance
- A consumer's insurance glossaryWashington State Office of the Insurance Commissioner
Educational information, not advice: This page is for general education only, not legal, financial, or insurance advice. Actual coverage, discounts, and requirements depend on your policy’s wording, your insurer, and the laws of your state. Confirm specifics with your own insurer or a licensed agent before making a decision. Insurpedia does not sell insurance and does not recommend specific insurers.