How Does Cash Value in Life Insurance Work?

Honestly speaking, the search for the right life insurance policy is not often a walk in the park. You have to pick the type of policy you need, relevant riders, think about financial goals and plan. Not everyone has that time. 

One component of life insurance that often leaves people confused is cash value. This feature is often offered to those who purchase permanent life insurance policies and provides lifelong coverage combined with an investment account. 

As a policyholder has the option of cashing in provided you agree to surrender your coverage to the insurance provider. Besides, you can always access the cash value as a policy loan, use it as premium payment or partially withdraw it. 

While investing in cash value seems like the ideal investment, sometimes it’s not always a smart choice. This article will explore and bring to light all you need to know about cash value in life insurance policy plans


What is Cash Value in Life Insurance?

The cash value feature is designed to gain interests or other investment interests which grows with time on a tax deferred plan.  For every premium paid, the amount is distributed into cash value, costs of insurance and service fees of the insurance. 

Cash value portion of life insurance is available in various plans each with a different way of accruing cash. The following are some of the plans of cash value that are offered with life insurance policy plans: 

Whole life insurance 

  • Offers a fixed monthly premium and a guaranteed death benefit. 
  • Your premium payments don’t change over the course of time. 
  • Cash value will accumulate at a minimum guaranteed rate. 
  • To build up the account faster, consider pouring your dividends in the cash value 


Universal life insurance 

  • Provides more flexibility as compared to whole life policy
  • Some universal insurance plans offer the option of adjusting death benefits and reduce premiums 
  • Growth of your cash value can be tied to an index 

Guaranteed issue life insurance 

  • This is basically a type of whole life insurance that is provided in plans of coverage amount. 
  • Most of these plans don’t offer cash value while those that do give small amounts given the small coverage amount 
  • Although the rules vary from one company to another, you can’t be rejected if you apply for guaranteed issue life insurance. However, should you die within the first two or three years of purchasing the policy, your beneficiaries wont receive the full benefits.


Ways of Accessing Cash Value 

As a life insurance policyholder, cash value is like your extra wallet. This means that you are free to withdraw or take a loan on the cash value portion. You can also terminate your policy by exchanging it for the full cash value with the exception of any applicable fees. The applicable fee are the charges the insurer may subject the policyholder for providing the coverage. 

Below are some of the ways you can use your life insurance cash value: 

  • Take out a loan against the cash value amount 
  • Withdraw funds from cash value
  • Use cash value to pay the premiums
  • Use the value as participating policies
  • Adding riders for extra coverage
  • Use it to receive tax advantages
  • Increase death benefit with paid-up additions
  • You can use the policy to purchase life insurance settlement 

Can I Invest in Cash Value Life Insurance 

While term life insurance policy plan may provide adequate coverage for most people, investing in cash value has its benefits. Although not useful sometimes, the investment option is advantageous in some circumstances. 

For instance, if you can afford it, why not just invest it? This is because sometimes the premiums can be too high if you include the cash value option considering the amount that goes into saving and service charges. 

Secondly, if you have a job that gives you a high salary with maxed retirement account contributions, diversifying savings into the cash value is a good option. Put into mind the tax deferred savings advantage. 

On the other hand, if you have a lot of wealth that you would like to pass it down to your beneficiaries, cash value policies can help in paying estate taxes. 

The Down Side Cash Value Policies

Given that some policies take a long to accumulate, it may take a while before you have enough in your cash value account to access for use. Of course this depends on the policy and service provider. 

You should know that any amount left in your cash value account at your death reverts to the insurance company while the policy’s benefits are paid to your beneficiaries. Any loans or withdrawals made on the policy are subtracted from the total benefits. On the other hand, some service providers give the option of your beneficiaries receiving both the benefits and cash value. When this happens, the premiums will be higher to cover the costs. 



Life insurance is designed as a financial safety net for your loved ones if something happens to you. Cash value just makes the coverage better with extra benefits that act as a savings account accessible to you. At some point, you may need that emergency fund because life happens. 

If you are looking for a life insurance policy with the benefit of cash value, Policyhub is the insurance company to call. We have a database with updated life insurance plans from top rated insurance companies across Canada. Call us today to start your life insurance journey with the benefits of cash value. 

Insurance Quote

    Insurance Type*



    Product Type*

    Primary Destination

    Pre-existing Medical condition*

    Start Date of Coverage*

    End Date of Coverage*

    Number of Visitors*

    Face Amount


    Personal Details:

    By using this form you agree with the storage and handling of your data by this website.