What Type Of Life Insurance Policy Generates Immediate Cash Value?

A cash value component in a life insurance policy may not be worth the amount of premiums. Find out why.

We’re all aware of term life policies where the policy is in force for a specific term, and when the tour ends, the death benefit is given out to the beneficiaries. These policies only benefit when the policyholder dies- but what if you could use some of the money while the policyholder is alive?

Let me tell you that it is very much possible!

The cash value component in a life insurance policy makes it possible. But let’s walk through the basics.

What is the Cash Value of a Life Insurance Policy?

Image Source: Worthright
Image Source: Worthright

Cash value is a permanent life insurance policy component, including an investment feature. Over time, when the policy matures, this cash value account tends to grow at a fixed interest rate.

The death benefit is only given after the policyholder dies; the cash value can be withdrawn or borrowed to use during the policyholder’s life. It can then use this accumulated amount to source loans, pay for significant expenses, or even pay the remaining premiums.

When the policyholder dies, It will give the agreed death benefit to beneficiaries, but what about the accumulated cash value?

If the policyholder doesn’t use it, it will return to the insurance company! So if you have collected cash value, make sure you use it during your life, or else it will be a waste for you.

Example of Cash Value in Life Insurance

I understand all this talk about cash value may have become too complicated, but let me make it easy with a real-life example with numbers!

Dave is a 50-year-old healthy male who opts for a whole life insurance policy: with a $30,000 death benefit and an accumulated cash value that will grow with time. He didn’t withdraw or borrow the cash value during the policy, which had become $8,000.

Dave dies, and his beneficiaries receive the full death benefit of $30,000. And the cash value of $8,000 will go back to the insurance company. Good for them because now they had a total liability of $22,000 instead of $30,000. But sucks for Dave, though.

Life Insurance Policies with Cash Value

Only permanent life insurance policies have a cash value component like whole life insurance, variable life, and universal life insurance. These three policies are widely known as cash-value life insurance.

Whole life insurance is a permanent life insurance policy that gives lifetime protection to policyholders and a guaranteed death benefit. Along with this, it also has a cash value component that the insured can borrow or withdraw during their life too.

Universal life insurance is also permanent, with flexible premiums and adjustable death benefits, as long as enough money is in the cash value account to cover the policy.

A variable life insurance policy has a death benefit component and a cash-value account, which is invested in several sub-accounts in the policy. The cash value account is tax-deferred, so if the policyholder wishes to cash in life insurance while still alive, they could do so through a tax-free loan.

Insurance Calculator For Cash Value Life

Image Source: IIFL Insurance
Image Source: IIFL Insurance

Cash-value life insurance cost and premiums rate is calculated through an online algorithm that allows policyholders to enter the necessary information.

Policy Genius has an online calculator that asks for age, cost of insurance, coverage amount, type of policy, etc., and then calculates the amount for you.

The cash value account grows through a fixed interest rate depending upon the market, provided the premiums are promptly paid. If that is the case, some portion of the premiums goes to the cash value component, which makes it grow over the policy years.

How Can I Withdraw Cash Value From Life Insurance?

Depending on the type of life insurance you have, you might be able to access the cash value of your policy through one of the following four methods:

  • Trading the cash value of your policy for cash
  • Taking a loan from your policy
  • Obtaining the cash value of your life insurance policy via transfer
  • Making cash value premium payments

Trading The Cash Value Of Your Policy For Cash

Image Source: Forbes
Image Source: Forbes

You can get a tax-free payout from permanent life insurance coverage. You will be required to pay income tax on withdrawals that exceed the amount you invested in the cash value portion of your insurance. Also, remember that withdrawing funds from your cash-value account reduces the amount that would otherwise be paid to your beneficiaries as a death benefit in the event of your passing.

Taking A Loan From Your Policy

Image Source: OneInsure
Image Source: OneInsure

You can often borrow up to the insurance’s cash. Your premiums for the cash value account, including any accumulated interest, may be included in this amount in part.  According to the CRA, taking out a loan is not considered income. However, if you die before repaying the loan, It will reduce your death benefit by the outstanding amount. Until you pay off your debt, interest will accumulate, which might lower the death benefits your insurance may provide.

Obtaining The Cash Value Of Your Life Insurance Policy By Transfer

Your insurance policy will no longer cover you if you surrender it, which is the same as canceling it. If you cancel your life insurance, your equity will equal the account’s cash value component plus accrued interest. However, your insurer can take money out of the insurance to compensate for only unpaid bills or payments. Additionally, you can be assessed “surrender costs,” which might reduce the policy’s surrender value even more. Further, you can owe taxes on the money you get due to surrendering the insurance.

Making Cash Value Premium Payments

If you’re short on funds, you can pay your life insurance premiums using the cash value in your policy. Contact your agent to learn how his feature applies to your policy. However, it’s crucial to remember that you will lose your life insurance coverage if you deplete the cash value account to the extent that your policy lapses.

The emergency reserves of a life insurance policy could provide one with a feeling of security. Everyone’s circumstances are unique, so speaking with an insurance agent to determine the best way to get your cash value money is a good idea.

Best Cash Value Life Insurance

Image Source: life insurance blog
Image Source: life insurance blog

According to Benzinga, here is a list of the best cash-value life insurance companies of 2020:

  • Best for Financial Strength: Northwestern Mutual
  • Best for Local Agents: State Farm
  • Best for Children: Mutual of Omaha
  • Best for Selection: Pacific Life
  • Best for Whole Life Insurance: MassMutual

These companies have been handpicked, considering their authenticity, years of experience, and consumer satisfaction.

Is Cash Value Life Insurance a Good Idea?

It all comes down to the deal-breaker question: is cash value life insurance a good idea after all?

There is no straight answer to this; let me be honest. The answer to this question lies in your requirements and needs and why you opted for a life insurance policy in the first place.

We know that term life insurance is cheaper than whole life because of only limited years of protection and a death benefit. A term life insurance policy is best for you if you want to create a financial legacy and protect your family after you die.

But do you have significant expenses soon? A house downpayment or a requisite debt? Sending your kid off to college or getting them married? If so, you need an accumulated cash value account that you can use while you’re alive, and that too tax-free!

Because of this, the premiums are higher, which can shake off your monthly budget. As appealing as it sounds to have a cash value, ensure you know the premiums will be much higher. Also, the cash value component grows slowly over time, so when you want to withdraw it, it might be smaller and more powerful than you expected.

By considering everything, especially your needs, you should head to an insurance company or an experienced insurance agent to better understand your needs and what type of policy will suit you best. Even if you’re only interested in the cash value component, you can choose between whole life, variable life, and universal life insurance policies based on your needs. Of course, paying premiums regularly is the trick to keep the policy in force!

Another piece of advice is to shop around! Don’t just put your finger on the first insurance company or the first policy you come across. Many companies believe in altering some parts of the approach to meet clients’ needs or offer discounts they may be eligible for. So make sure you avail of such opportunities, which will be possible if you skim through the market.

Benefits And Drawbacks Of Cash Value Life Insurance

Image Source: Leak-Pack
Image Source: Leak-Pack

Some people may find cash-value life helpful insurance, but not everyone should choose it. Before selecting a cash-value life insurance policy, consider the following advantages and disadvantages:



Lifetime protection: As long as payments are paid, cash-value life insurance is a perpetual policy, offering lifetime protection. to the insured. High costs: Cash-value life insurance often has higher premiums than term life insurance, which may make it more Expensive alternative for certain people.
Tax-deferred growth: Policyholders do not tax on gains until they take the money since the cash value element of the policy grows tax-free. Limited investment possibilities: The cash value element of the insurance may only offer a small number of investment alternatives, and the returns on those investments might not be as those of other investment vehicles.
Access to cash: The cash value element of the policy can be accessed by policyholders in several ways, including through loans or withdrawals, which can increase their financial flexibility and liquidity. Complexity: Cash-value life insurance plans might be complex, so policyholders must comprehend the fine print.
Growth potentials: The cash value element of the insurance can increase over time, possibly offering a second source of retirement income or a way to leave a heritage to loved ones. Long-term commitment: Cash-value life insurance plans should be kept for a very long time; otherwise, heavy penalties and surrender charges may be associated with early cancellation.
Protection from market declines: Unlike other investment kinds, a life insurance policy’s cash value is often protected against market declines. Lower rate of return: Although the policy’s cash value can be used for investment and savings, the rate of return may not be as high as other investment alternatives.


Different Life Insurance Policy Types

Image Source: Wealth Nation
Image Source: Wealth Nation

There are two primary categories of life insurance:

  • Permanent life insurance
  • Term life insurance

Each of these categories differs in specific ways. While not all policies are ideal, there are better and worse alternatives. We’re curious about what type of life insurance coverage produces instant cash value.

Permanent Life Insurance

Permanent life insurance lasts forever, as the term implies. Only when you stop making premium payments does your life insurance coverage end, but you can still access money collected over time.  Permanent life insurance is also known as cash-value life insurance because a significant portion of premium payments goes to the cash value rather than only death benefits.

Permanent life insurance plans come in two primary categories:

  • Whole Life Insurance
  • Universal life insurance
  • Variable universal life insurance (VUL),
  • Indexed universal life insurance (IUL).

Term Life Insurance

The simplest type of life insurance is term life insurance. Because it costs less than permanent life insurance and pays the death benefit to the decedent’s family, many people choose to get it. There are two popular forms of term life insurance, which typically have terms of between 10 and 30 years:

  • Level
  • Decreasing

The death benefits are mentioned in both of these. Level-term life insurance pays the pre-agreed cash to the beneficiaries once the insured dies. The monetary amount for the declining term gets smaller as it goes on.


Buying life insurance with an instant cash value isn’t usually a wise choice unless you have the money to pay for the entire policy upfront. There are more life insurance plans available without a waiting period. You should know the life insurance policies that provide immediate cash value and where to get them.


Image Source: Pexels
Image Source: Pexels

Does life insurance with a single premium provide instant cash value?

You may be considering term life insurance for a single individual. This type of insurance produces no immediate cash value.

Does variable life generate instant cash value?

In Canada, variable life is not a thing that is utilized. You could be considering whole life insurance with extra cash deposit alternatives or universal life insurance with different cash deposit alternatives or universal life insurance. With these plans, you may increase your contributions and make additional investments resulting in cash values.

Which full life insurance coverage would produce cash value right away?

The option most likely to have a cash value component is permanent life insurance.

What distinguishes death benefits from cash value?

The death benefits of the insurance are distinct from the cash value. The death benefit is the sum of money your chosen beneficiary will get if you pass away, as opposed to the cash value, which is an investment that grows over time. You will get the accumulated cash value if you terminate your life insurance coverage.

Charles Bains

Charles Bains

Charles Bains started his insurance career as a marketing intern before pounding the pavement as a commercial lines agent in Orlando, FL. As an industry journalist, his articles have appeared in a variety of trade publications. His insurance television career, short-lived but glorious, once saw him serve as the expert adviser on an insurance-themed infomercial (yes, you read that correctly). Having recently worked for various organizations, coupled with his broader insurance knowledge, Charles is able to understand our client’s needs and guide them accordingly. He is a gem for Insurance Noon as his wide area of expertise and experience have been beneficial in conducting further researches to come up with solutions and writing them in a manner which is easy for everyone including beginners to comprehend.

Insurance Noon is the world's leading source of insurance related content on the web, focusing on industry news, buying guides, reviews, and much more.