Quick answer: Cash value life insurance is a type of permanent life insurance, such as whole life, that does two jobs. It pays a death benefit to your family when you pass away, and it builds a cash value inside the policy while you are alive. You can usually borrow against that cash value through a policy loan. It costs more than term insurance, and how it grows depends on the policy and the company, so always read the policy illustration and ask questions.
Many people have heard of term life insurance but are confused about cash value. Here is a simple explanation.
Term vs Cash Value Life Insurance
| Feature | Term Life | Cash Value Life (like Whole Life) |
|---|---|---|
| How long it lasts | A set number of years | For life, if premiums are paid as required |
| Builds cash value | No | Yes |
| Premium | Lower to start | Higher |
| Can borrow against it | No | Usually yes |
Term is pure protection for a period of time. Cash value policies add a living benefit you can access.
How Cash Value Builds
When you pay a premium on a whole life policy, part goes to the cost of insurance and expenses, and part goes toward the cash value. Over time, the cash value grows. With whole life, the company sets out guaranteed values in the contract. Some policies from mutual companies may also pay dividends, but dividends are not guaranteed.
The early years usually build cash value slowly because of start up costs. Many people are surprised by this, so it is important to look at the numbers year by year.
Ways You Can Use Cash Value
- Policy loans: Borrow against the cash value. The policy stays in force as long as you follow the rules.
- Withdrawals or surrender: Some policies allow these, but they can reduce or end the coverage.
- Paying premiums: In some cases, cash value or dividends can help pay premiums.
Loans have interest, and unpaid loans reduce the death benefit. Always know the terms before you borrow.
How It Connects to Infinite Banking
The Infinite Banking Concept, also called being your own banker, uses a specially designed whole life policy as a place to store money and then borrow against it for things like cars, business needs, or real estate. People often add paid up additions to help the cash value grow faster in the early years. Our other pages explain policy loans, paid up additions, and how infinite banking works.
Questions to Ask Before You Buy
- How much cash value will I have each year, guaranteed and not guaranteed?
- What are the policy loan terms and interest rate?
- Can I add paid up additions, and how much?
- What happens if I miss a premium?
- How strong is the insurance company?
Who Should Think About It?
Cash value life insurance can fit people who want lifelong coverage and a long term place to build value they can borrow against. It is not right for everyone. Some people need the most coverage for the lowest cost, and term may fit them better. Your age, health, budget, and goals all matter.
Talk to a Licensed Agent
I am licensed in life and health insurance in a number of states, and I can usually get licensed in a new state quickly if needed. I am happy to walk through how a policy works and answer your questions. Nothing on this page is a promise of any result. Every policy is different, so read the illustration and contract carefully.
You can also join our free Cash Flow Association community on Skool at skool.com/cashflowassociation to learn more about cash flow, infinite banking, and money basics with other members.
The Bottom Line
Cash value life insurance is permanent coverage that builds a value you can borrow against while you are alive. It costs more than term, grows slowly at first, and depends on the policy design. Ask good questions and look at the numbers before you decide.
Keep Reading on This Site
- What Are Paid Up Additions? A Plain English Guide for Whole Life Policy Owners
- How Does a Policy Loan Work? A Plain English Guide to Borrowing From Whole Life Insurance
- How to Build an Emergency Fund: 7 Simple Steps to Get Started
- Insurance and Infinite Banking
- Insurance and Own Your Bank Guide
Frequently Asked Questions
What is cash value life insurance?
It is permanent life insurance, like whole life, that pays a death benefit and builds a cash value you can usually borrow against.
How is cash value different from term life insurance?
Term covers a set number of years and has no cash value. Cash value policies last for life and build value, but cost more.
Can I borrow from my life insurance cash value?
Usually yes, through a policy loan. Loans have interest and unpaid loans reduce the death benefit.
Why is cash value low in the first years?
Early premiums cover start up costs, so cash value often builds slowly at first. Look at the year by year numbers.