Cash Value Life Insurance Explained

Permanent life insurance refers to any cash value of insurance that provides continuous coverage to age 95 or 100.

This type of policy has a level premium that must be paid to keep the coverage in force, which is generally higher than the premium for term life. Under some circumstance, premium payments may be reduced or stopped, but this cannot be counted upon.

Typically, permanent policies will accumulate a cash value, which is tax deferred. Most permanent policies allow you to borrow against the policy value or withdrawal all or a portion of the cash value.

Premiums are higher than you would pay for the same face amount of term insurance, but they are less than the cumulative premiums you would eventually pay, if you were to keep renewing a term policy.

This is because interest earned on the cash value helps to offset the higher cost of pure life insurance protection, as the insured person grows older.

Some policies (e.g., universal life) allow you to vary your premium payments every year and even skip a payment, if you wish. The premium you pay (less expense charges deducted) goes into an accumulation account that earns interest.

Mortality (insurance) charges are deducted from the account. Insurance coverage continues as long as there is enough money in the account to pay the insurance charges.

The cash value of many life insurance policies may be affected by an insurance company’s actual experience over time.

For example, mortality expense charges are based on actuarial assumptions that may require periodic adjustment as national mortality experience gradually changes.

Likewise, expense charges are affected by such factors as how efficiently the company operates, economies of scale, overall company expenses, and so forth. Policy loans will also affect the long-term performance of a policy.

Tony Steuer is an author and advocate for financial preparedness. Tony Steuer, CLU, LA, CPFFE, helps people make sense of the financial world in a way that’s easy for them to understand. His books including, “GET READY!,” “Insurance Made Easy,” and “Questions and Answers on Life Insurance,” have won numerous awards. Tony is the founder of the GET READY! Initiative which includes the GET READY! financial organization system, the GET READY! Financial Preparedness Club, GET READY! Podcast, and the GET READY! Financial Principles, a best practices playbook for the financial services industry. Tony served as long-term member of the California Department of Insurance Curriculum Board. Tony is regularly featured in the media including the New York Times, the Washington Post, Fast Company, and other media. He has also appeared as a guest on television shows, such as ABC’s “Seven on Your Side.” Visit to join the GET READY! Financial Preparedness Club and access free resources.

Leave a Comment