It is really called “Cash Surrender Value”. When you enter into a contract with a life insurance company and buy Permanent Life Insurance, you have an insurance policy that is unlike any other insurance policy that exists. As you make premium payments into your policy, a percentage of your premium becomes available to you in the form of cash value. Permanent Life Insurance is a different kind of insurance and it starts with the Cash Surrender Value.
It can be protected from creditors (varies by state). Unlike other financial vehicles that can subject your money to a variety of risks, Cash Value Life Insurance has some unique elements of protection. Since cash value is not public record – short of a court order – no one knows how much of it you have. Depending on your state, cash value can have a level of protection from creditors. This can include protection from Bankruptcy, law-suits and liens, for example. Perhaps most importantly, with most cash value insurance, there is no concern over market risk since you have a contractual guarantee with the insurance company that you will not lose any money.
It provides guaranteed growth. Cash value is a contractual guarantee by the insurance company. Regardless of what the stock market does, most cash value policies are guaranteed to grow. In the case of mutual insurance companies, this growth is based on the total assets of the insurance company and not the stock market. As an incentive to keep the policy, the insurance company pays guaranteed interest based on the amount of the policy’s cash surrender value.
It earns dividends. The owner of a cash value life insurance policy of a mutual insurance company is an actual owner of the insurance company itself. As an owner of the insurance company, you are entitled to receive a dividend payment each year. It is paid out to each whole life policy holder on the amount of cash surrender value they have built within each whole life policy. This dividend payment is received in addition to the guaranteed growth of the policy.
You can access it at any time for any reason. As you build cash surrender value inside of your whole life insurance policy, as the contractual owner of the policy, you have control of its use. You can surrender (or withdrawal) the cash surrender value at any time. Or, you can take out a loan against your cash value from the insurance company. There is no qualification process, credit check or application. In the case of a loan, it is paid back at your own pace and each payment replenishes your cash surrender value.
It can do multiple things at the same time. Perhaps the most compelling component of cash value life insurance is simply this – cash surrender value is financially serving you in multiple ways at the very same time: (1) The moment cash value is created, it contains a death benefit that your estate can receive at some point in the future. (2) Cash value can be leveraged (used) outside of the policy at any time. (3) Even when the cash valued is used outside of the policy, the policy holder is still receiving contractual growth on their cash value from the insurance company. (4) A dividend payment can be paid into the policy each year. Cash surrender value can receive each one of these financial benefits simultaneously. Therefore, because of these unique characteristics of cash surrender value, each premium dollar paid is working for you in several ways at the very same time.
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