What life insurance builds cash value?


Editorial team Published on

Cash value life insurance is a permanent policy that provides a lifelong death benefit while also building a tax-deferred savings component over time.

How It Works

  • Two Parts: Part of your premium pays for the insurance, and the rest goes into a cash value account.
  • Tax-Deferred Growth: The savings grow without you paying taxes on the earnings each year.
  • Accessing Funds: You can borrow against the cash value, make withdrawals, or use it to pay future premiums.

Common Types of Policies

  • Whole Life Insurance: Offers a guaranteed death benefit, fixed premiums, and predictable, guaranteed cash value growth.
  • Universal Life Insurance: Provides flexibility to change your premium payments and death benefit amounts, often with a minimum guaranteed growth rate.
  • Variable Universal Life Insurance: Allows you to invest your cash value in market accounts or funds for higher potential growth, though it carries investment risk.

Pros and Cons

  • Pros: Builds a financial asset you can use during your lifetime for emergencies or retirement; offers lifetime coverage.
  • Cons: Costs significantly more than term life insurance; taking loans or withdrawals can lower the final death benefit or cause the policy to lapse if mismanaged.