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Life insurance does more than protect your beneficiaries when you die. Some life insurance policies also have a cash value, otherwise known as a living benefit. The death benefit is for your beneficiaries, while the living benefit is for you – your beneficiaries don’t get it if you die before using it.

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The cash value can be an emergency fund or provide access to the cash you need when in a bind. There are several ways to access the funds and only certain types of insurance policies that offer it.

Are you ready to learn more about life insurance policies and immediate cash value? Read on.

What is Cash Value in Life Insurance?

The cash value of life insurance is the money invested in your life insurance outside of your premium costs. Whole and universal life policies offer a cash value that they invest for you, allowing your money to grow until you need it.

If you cancel your insurance policy today, the cash value is what you’d walk away with – not the death benefit. The death benefit is only payable if you die.

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Most insurance companies allow you to take a loan out on your cash value or withdraw it. If you take a loan, you pay it back with interest (to yourself). If you withdraw it, they lower your death benefit dollar for dollar.

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But you won’t receive your entire cash value.

Insurance companies have charges, called surrender charges which are costs for taking the money early. They deduct the surrender charges from your cash value, giving you the net amount left.

If you surrender the entire cash value, you surrender the policy. This cancels the policy and leaves you with no life insurance. To keep the policy intact, take a loan or partial withdrawal rather than the full value.

Reasons Policyholders Need the Cash Value

Policyholders withdraw their cash value for many reasons, most of which are personal, but here are some common reasons:

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  • Cover unexpected out-of-pocket medical expenses during retirement
  • Supplement retirement income
  • Cover emergency expenses
  • Help a friend or family member
  • The policyholder no longer needs the death benefit and surrenders the policy

Types of Life Insurance Policies with Cash Value

Two types of life insurance include a cash value – whole life and universal life insurance. Each policy has different advantages and disadvantages suiting different people.

Here’s what you should know.

Whole Life Insurance

Whole life insurance is a permanent policy that lasts for your ‘whole life.’ As long as you pay the premiums, your death benefit remains unchanged. Your premiums consist of the death benefit premium and money to invest in your cash value.


  • Premiums remain constant for the life of the policy
  • Your cash value grows tax-deferred
  • You can borrow against the property’s cash value


  • It lasts for your lifetime
  • Your premiums never change
  • The cash value grows tax-deferred
  • Beneficiaries don’t pay tax on the death benefit


  • Premiums are higher than term life insurance
  • You may take a lower benefit to keep the premiums down
  • You don’t control where the cash value is invested

How Long does it Take to Build Cash Value?

Cash Value

You won’t have enough cash value right away to supplement any income or cover any emergencies.

Plan on at least 10 years of making premium payments before you see enough increase in your cash value to use it for anything.

Who Should use Whole Life Insurance?

If you want more protection than term life insurance offers, consider whole life insurance. It’s great for business owners, retirees who want an emergency fund, or someone who didn’t save enough for retirement and worries about running out of money.

Universal Life Insurance

There are two universal life insurance options with immediate cash value – indexed universal life and variable universal life.

Both grow a cash value, have high premiums, and last for your lifetime, but their potential is different.

Indexed universal life cash value accounts are tied to S&P 500 investments. There’s a cap on your upside, called a participation rate. For example, if you have a 50% participation rate and your investments increased 10%, you’d earn 5%. There’s usually a floor too, which can be as low as $0, so read the fine print.

Variable universal life invests in almost any investment, but you’re in charge of where and how much you invest. There aren’t caps on profits, but there’s also no floor for losses either. You could lose everything, and there’s a lot more pressure on you to handle the investments.


Both universal and variable universal life insurance offer:

  • Immediate cash value with investment potential
  • The ability to adjust your premiums and death benefit without changing policies
  • You can make tax-free withdrawals if you withdraw less than your total premiums paid


  • The investment potential is much higher in indexed and variable universal life policies versus whole life
  • You can keep the policy long enough to accumulate your desired cash value and then surrender it
  • You can change your premiums if they become too high to afford, or you can use your cash value to cover your premiums


  • The premiums on both policies can get high
  • The risk of a total loss is much higher than a whole life policy
  • There is a lot of responsibility on you to manage the investment portion of a variable universal life policy

Final Thoughts

If you want ‘extra’ cash and feel better about accumulating a cash value in a life insurance policy, compare your options.

The cash value can be a great way to boost your retirement income or protect yourself during an emergency. If you surrender your cash value, though, you eliminate your death benefit, so make sure you have enough money set aside for your final expenses and any money you want to leave your loved ones before surrendering a cash value life insurance policy.


Meet Aaron H., a senior life insurance agent from California with 15+ years of experience. With a major in finance, excellent analytical and communication skills, and a passion for helping clients find personalized solutions, Aaron is a trusted advisor in the industry. He stays up-to-date on the latest trends and developments by attending webinars and workshops, reading industry blogs, and writing informative blog posts on this website. Aaron also has a keen understanding of SEO and online marketing, which he uses to help his clients reach a wider audience and get the coverage they need. He cherishes spending quality time with his wife, two children, and elder parents.