Is a Cash Value Life Insurance Policy All it’s Cracked Up to Be?

Cash value life insurance policies are a part of a permanent life insurance policy and act as a savings account should you need to borrow money for income during retirement or anything else that may come up. As good as they may seem, cash value life insurance policies may not be all they’re cracked up to be. Read our guide to decide is cash value life insurance is the best option for you.

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Tim is a licensed life insurance agent with 23 years of experience helping people protect their families and businesses with term life insurance. He writes and creates stuff for QuickQuote and other insurance and financial websites.

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Benjamin Carr was a licensed insurance agent in Georgia and has two years' experience in life, health, property and casualty coverage. He has worked with State Farm and other risk management firms. He is also a strategic writer and editor with a background in branding, marketing, and quality assurance. He has been in military newsrooms — literally on the frontline of journalism.

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Reviewed by Benji Carr
Former Licensed Life Insurance Agent

UPDATED: Jul 19, 2021

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According to, one-third of people haven’t bought life insurance because they’re unsure of how much or what type to buy.

That’s not very surprising given the multitude of options available. Buying life insurance can be confusing. And as you’re considering what will serve your family’s needs best, you’ll likely wonder whether or not you should apply for a policy with a “cash value.”

Permanent life insurance policies build a cash value (sometimes known as a cash-surrender value) over time in addition to providing a death benefit to beneficiaries. The cash value accumulates on a tax-deferred basis, and you can borrow money from it to pay expenses or to use as income during retirement. You could even use it to pay the premium for your policy if necessary. If you decide to surrender (end your policy), any cash value accumulated will be yours.

Sounds good, doesn’t it? But as good as cash value policies may seem, they’re not always the best option if you’re looking to secure your own financial peace of mind and protect your family’s financial well-being after you’re gone.

The Downsides to Cash Value Life Insurance

  • While there’s merit in the argument of a policy with cash value being a way to save money with tax-deferred growth, there are other investment opportunities like 401Ks and IRAs that serve that purpose as well.
  • Cash value policies can be pricey. Some come with high costs for the insurance plus substantial management fees and “surrender charges” that you’ll incur if you drop your policy within a certain period.
  • Although it might sound appealing that you’re not required to pay back any amount you borrow from the cash value amount on a permanent life insurance policy, it can severely decrease the benefit your beneficiaries will receive when you die. Not only will the amount you borrowed get deducted from the death benefit amount, but so will the accrued interest on the dollars borrowed.
  • If you surrender your policy in the early years, you might find you’ve accumulated little or no cash value on your policy.
  • Your cash value could be affected by a number of influences, including mortality rates and your life insurance company’s investment earnings and expenses (see guidelines here: life insurance underwriting guidelines).

Your best bet is to talk with a trusted life insurance professional to discuss your current situation and your goals, so you arrive at the best life insurance scenario for you. As you explore your options, ask if a term life insurance policy might serve your needs.

Term life policies offer flexibility and lower premiums than permanent life policies. Although they don’t provide cash value, you might find that you’ll save a substantial amount on your premium compared to what you’d pay for a permanent policy. And that means you could have more to invest in more lucrative retirement savings accounts like your 401K, IRA, or another plan.

Deciding on the right type of life insurance requires considering the present and future needs of you and your family. Choose carefully and wisely by doing your homework and getting guidance from a professional who will put your best interests first.

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