What Life Insurance Has Cash Value?

The metaphor of a barrel rolling down a hill is a basic portrayal of how a cash value life insurance policy works.

Whenever premiums are paid into the policy, either on an annual, semi-annual, or monthly basis, this increases the level of “water” in the “barrel.”

Every month, the insurance company will turn the spigot and take out their expenses (EXP) and the mortality charges (cost of insurance/COI). If there is not enough “water” in the “barrel”, the policy will lapse (terminate).

The remaining “water” in the “barrel” is the accumulated value. Subtract the surrender fees and this is your surrender value.

The barrel metaphor is an easy way to explain how a cash value life insurance policy works. There are many types of permanent life insurance, including:

Adaptable or Adjustable Life

A type of insurance that allows the policyholder to change the plan of insurance, raise or lower the face amount of the policy, and lengthen or shorten the protection period.


Life insurance payable to the policyholder if living, on the maturity date stated in the policy, or to a beneficiary if the insured dies prior to that date.

Equity Indexed Universal Life

This policy allows policyholders to tie accumulation values to a stock market index. Typically, they contain a minimum guaranteed fixed interest rate component along with the indexed account option.

Joint or Survivorship Life

Covers the lives of two people and pay benefits when the second person dies. Couples often use it to fund estate tax liability.

Limited Pay

A type of whole life insurance in which premiums are payable for a specific number of years or until death, if death occurs before the end of the specified period.

Universal Life

A flexible premium life insurance policy, which allows the policyholder to change the death benefit from time to time (with satisfactory evidence of insurability for increases) and vary the amount or timing of premium payments.

Premiums are credited to a policy account from which mortality charges are deducted and to which interest is credited at a rate that may change from time to time.

Variable Life

A policy in which the death benefit and/or cash values vary (the death benefit is guaranteed to be at least as large as the initial face amount) reflecting the investment experience of a separate pool(s) of assets supporting the reserves.

Variable Universal Life

Similar to universal life in that the policy owner chooses the premium to be paid each period, and has the option to increase or decrease the policy death benefit. However, the assets supporting the policy are maintained in one or more separate accounts, and the policy owner’s value fluctuate, but no guarantees.

Whole, Ordinary, and/or Straight Life

Whenever the insured passes away, the death benefit will be rewarded to the beneficiary. Premiums may be payable for a specified number of years (limited payment life) or for life (straight life).

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 https://tonysteuer.com/ to join the GET READY! Financial Preparedness Club and access free resources.

Leave a Comment