Term life insurance has no cash value — a savings-like account that grows over time and which you can withdraw from while you’re alive. In other words, it doesn’t offer any cash benefits before you die — you don’t get a refund if you cancel or outlive a term life policy. Term life policies only come with basic protection in the form of a death benefit, which your beneficiaries receive if you die while the policy’s in effect.
Cash value is common among permanent life insurance policies. Part of your premiums are put in a separate cash value account, and those funds grow tax-deferred over the life of the policy. Depending on the type of policy, once you’ve accumulated enough cash value you can use it to take out a loan or cover your policy premiums. These two distinctive features — cash value and lifetime coverage — make permanent policies significantly more expensive than term life insurance.
What type of life insurance has a cash value?
Both term life insurance and permanent life insurance offer a financial payout when you die as their primary benefit — but only permanent policies also offer a cash value component.
Permanent life insurance | Term life insurance | |
|---|---|---|
Death benefit | yes | yes |
Cash value | yes | no |
Cost | Significantly more expensive than term life insurance | Cheapest life insurance available |
There are several types of life insurance with a cash value, including:
The differences between these permanent policies come from how the cash value grows and how it can be used. Speaking with a licensed financial advisor is the best way to determine if a permanent life insurance policy is a good option for you, and if so, which type.
How does cash value life insurance work?
What makes cash value unique as a life insurance benefit is that you can use it while you’re still alive.
A portion of the premiums you pay to keep your policy active accumulates in a separate cash value account.
When the amount of cash value gets large enough, you can use the money for a loan, to pay premium payments, or for a cash withdrawal.
What can you do with the cash value?
Once you’ve accumulated enough cash value, you can:
Surrender your policy for cash: After you cash out your policy, your coverage ends. The profit is taxable and you’ll need to pay administrative and/or surrender fees.
Take out a policy loan: Life insurance loans use your cash value as collateral. But if you don’t repay your loan, your policy could lapse or the unpaid amount will be deducted from the death benefit when you die.
Use the money to pay premiums: Usually, this is only an option once you’ve had a policy for at least one year, and can help offset the high costs of permanent insurance. But if your cash value runs out and you don’t pay your premiums, your policy will lapse.
Patience is the name of the game when it comes to benefiting from cash value accounts — it takes a long time to build up a policy’s cash value. The greatest interest growth doesn’t happen until you’ve had the policy for two or three decades.
If you surrender the policy within the first 10 years, it’s unlikely that your cash value will be greater than the total premiums you've paid into it.
Ultimately, term life insurance is the best option for most people looking to provide an affordable financial safety net for their loved in the event of their death — even though it doesn’t come with a cash value component. A Policygenius agent can help you determine which type of insurance policy better meets your needs.
Why doesn’t term life insurance have a cash value?
Term life insurance is designed for the singular purpose of providing a death benefit payout when you die and there aren’t additional features that you can utilize when you’re alive, like a cash value account. This makes term life insurance simple and significantly cheaper, but it does mean you won’t have the added benefits that come with a cash value account, like being able to borrow from the account.
