How Does Cash Value Work in Life Insurance?
Plain-English definition: Value inside a permanent policy after applicable charges and credits. It is not automatically added to the stated death benefit.
Value that develops inside permanent coverage
Cash value is an internal permanent-policy value affected by premiums, charges, guarantees and credits. Accessing it can change the policy's values, taxes and lapse risk.
Why cash value and surrender value can differ
One statement can show several different values
A policy may show $40,000 of cash value but a lower cash surrender value because a surrender charge and loan apply. Neither number is automatically added to the death benefit.
Cash value is not automatically an extra payout
Cash value is the contract value before some adjustments. Cash surrender value is the net amount available on surrender.
Review guarantees, charges and access effects
- Compare guaranteed and current values
- Separate cash value from surrender value
- Model the effect of loans or withdrawals before taking money
Trace the values inside a permanent policy
Use cash surrender value and canceling life insurance to see how this definition affects a real policy decision.
Terms to read alongside cash value
Sources for understanding cash value
This page explains general insurance usage. State law, the issued contract and the insurer's current records control a specific policy. Use the sources below to verify general terminology, then check the exact policy language.