How Does Cash Value Accumulate In An Insurance Policy?

Permanent life insurance is another term that is used for cash value life insurance. This version of life insurance is inclusive of a death benefit along with cash value accumulation. Variable, whole and universal life insurance have cash benefits that have built-in value, but term life does not.

Over the years, if you have gathered a sizeable cash value, then you use it to:

  •         Pay your policy premium.
  •         Take out a loan at a lesser rate than what the banks have to offer.
  •         Make an investment portfolio; this way, you can maintain and accumulate your wealth.
  •         The cash value will also supplement your retirement income.

Now, let’s move on and read how the cash value of life insurance is accumulated, but the details depend on the type of policy you own and the life insurance company as well. The process stated below is pretty standard and how insurance usually works.

The premium is divided:

When you make your monthly premium payments, they are divided into two segments. One segment is given to the death benefit of your policy, this is based on the owner’s health, age, and other factors, while the second segment is meant for the insurance company’s cost (operating) and profits. Whatever remains outside these two segments will go towards your policy cash value. Usually, this money is put towards a yield investment by the life insurance company. As the years go by, the more premiums you pay, your cash value will expand accordingly.

Accumulation tends to slow down:

If you possess a cash value of life insurance policy, then you will mostly have to pay a premium that is leveled. In the initial stages of the plan, you will witness a high percentage of the premium go towards the cash value. However, as time goes by, the amount that is reserved for the cash value begins to decrease. As you grow old, the life insurance cost will get more expensive, and it will get pricey for the insurance company as well. During the later years, the cash value accumulation begins to decrease because your premium expenses are diverted towards the cost of the insurance.

Cash accumulation for various insurance policies:

Whole life: They provide “sure-fire cash.” This policy has cash accounts that tend to grow according to the formula that the insurance company gets to determine.

Universal life: This insurance plan collects the cash value that is based on the current interest rates.

Variable life: Here, the cash value of life insurance policy invests its funds in sub-accounts that work like mutual funds. The cash value is determined based on how these sub-accounts are executed.

How does your cash value grow?

For example, you have bought an insurance plan that is a whole life policy that will give you a one million dollar death benefit. Now, you had purchased this policy when you were 25 years old, and you regularly pay the (monthly) premium without fail; as a result, part of the premium goes toward the cash value of the policy.

Flash-forward to thirty years since you purchased the policy, you’re now 55 years old, and your cash value has increased to 500,000 dollars, and the insurance cost covers the remaining 50,000 dollars. Another ten years go by, and your cash value has grown to 75,000 dollars; now you’re 65 years old, and your life insurance is getting costly.

Once you take in the cash value, the policy is ensuring only 250,000 dollars. The remaining death benefit will be paid for by the cash value.

The numbers mentioned above will vary, and it depends on your policy type and the company you choose as well as some of the interest rates.


When you think about the cash value of life insurance, you may want to consider selling your life insurance policy. When you’re thinking about it, ensure that you choose a good insurance advisor who will help you out when calculating the potential cash value accumulation from the permanent life insurance policy. The settlement agent will ensure that nothing is wasted and the cash value that remains at your death will go back to the insurance company and not your beneficiaries. The cash value of your insurance policy can also be used to pay off your policy premiums, and if you have enough cash value, then you can stop paying the premiums from your pocket and ensure that the cash value account covers the payment.

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