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Permanent Life Insurance Cash Value

Certain types of permanent life insurance generate a cash value that can grow over the life of the policy. This means that the policyholder can borrow against the policy (which lowers the death benefit payable by the amount of the loan) or even cancel it for all or part of the policy’s cash value while he or she is still alive. Different kinds of permanent life insurance have different rules and limitations when it comes to generating cash value.

Whole Life Insurance Cash Value. Whole life insurance is guaranteed to generate a cash value that, after a specified period of time, can be borrowed against while the policyholder is still alive. These types of policies can also be canceled for a portion of their cash value. The “highest-premium” type of permanent life insurance available, a whole life policy provides a lifetime of coverage at a set premium.

Universal Life Insurance Cash Value. Like whole life insurance, universal life insurance is also guaranteed to generate a cash value that, after a specified period of time, can be borrowed against or even withdrawn by the policyholder. A universal life policy provides greater flexibility than any other kind of policy insofar as a broad range of premiums can be applied to a given level of coverage. Since the cash value is credited interest on a tax-deferred basis, extra cash can be added to the policy to earn interest – and then withdrawn or loaned against at a later date. (Withdrawals and loans receive different tax treatments, however.) Premiums can be reduced or even stopped as long as long as there is enough cash value in the policy to sustain it. But if the interest credited to your cash value decreases, the cash value may not grow enough – and the premiums you are expecting to pay may prove insufficient to maintain the policy for the period you desire. Many universal life policyholders pay a higher premium than they have to at the beginning of the term in an attempt to offset future costs. Universal life premiums are generally lower than whole life premiums. All in all, a universal life policy can provide a lifetime of coverage with some flexibility regarding premium and face amount.

Guaranteed Universal Life Insurance Cash Value. Guaranteed universal life insurance is not designed to generate any significant cash value, so chances are the policyholder won’t be able to borrow against these types of policies or cash them out at any time.

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