What is Cash Value?

• When you buy whole life insurance or some other variation of permanent insurance, you will generally have a cash value as part of your policy. Every time you make a premium payment, part of your payment will go to the death benefit and another part will go towards administration. Part of your premium will also go towards an investment account that accumulates a cash value. This cash value grows in relation to the size of the premiums and the returns on your investments.
  
  

Cash Value vs Face Value

• When you buy a life insurance policy, it is important to understand the difference between the cash value of the policy and the face value. While these numbers may be similar, they are not the same term. The face value of the policy is the amount of money that will be paid to your beneficiary when you die. For example, if you have a $1 million life insurance policy, the $1 million is the face value and that amount will be paid to the beneficiary of your choice. The cash value is what you can get if you surrender the policy, which will be less than the face value.
  
  

Accessing the Cash Value

• Once you accumulate a cash value in your policy, you could decide to access this when you need money. One way that you could access the money is to cash out your policy. The disadvantage of this strategy is that you will no longer provide a death benefit to your beneficiaries. Another way to access the money is through a policy loan. With a life insurance policy loan, you can essentially borrow a percentage of the cash value in your policy and then repay it in the future.
  
  

Term Insurance

• When you buy term life insurance, your policy will not have a cash value at any point. All of the money that you pay towards term insurance goes towards the death benefit and the administration of the policy. Many people like to buy this type of insurance because it is cheaper than cash value insurance. You could choose to take the difference between the two policy premiums and invest it into the financial markets. This could give you more control over your investment and you can also earn superior returns.