You may have heard this term and have no idea what it is, most do not unless someone has visited with them about permanent life insurance. Because I get asked about it a lot I want to simply explain to you what it is and make it a little easier to understand.

Permanent life insurance has cash value associated with the policy. In simplest terms, you pay your premium and they give you access and use to a certain amount of those premium dollars. In a whole life policy, these dollars are also earning you a guaranteed interest rate, paid to you by the life insurance company.

Cash value is there for these three reasons:

  1. If you should decide to cancel (terminate) the policy, the company will send back to you the amount that you have in cash value.  Ex: If your cash value is $5,000 the company will send you a check for $5,000.
  2. The cash value is what you can borrow against should you want to take a loan against the policy. What I mean here is you can borrow money from the life insurance company up to the amount that is in your cash value. Ex:  If the cash value is $5,000. The company will loan you up to $5,000. There are no restrictions on this money, you are able to use it for whatever you like and pay it back on your own terms.
  3. This cash value amount is also able to be withdrawn from the policy. Meaning it was not loaned but removed just like if you withdrew money from a savings account.  Ex: If you have $5,000 and withdraw $3,000 you will only have $2,000 left in your cash value. This will also affect and lower your death benefit.