What Is Cash Value? The Definition of Cash Value

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keyUnderstanding cash value is vital to making informed, effective decisions for your permanent life insurance policy. Cash value is the money that grows inside of a permanent life insurance policy. Policyholders can access their cash value at any time – it is their contractual right.

The phrase ‘cash value insurance’ is heard often, because it is one major component that makes permanent insurance different from term insurance.

What Can You Do with Your Cash Value?

When you self-finance through your policy, you create the ability to bypass the bank.

For instance you own a life insurance policy with a cash value of $20, 000, and you want to purchase a car for $15,000. With no questions asked, the insurance company will write you a check for the $15k.  Since the awarded check from the insurance company was given to you as a “policy loan” you are committed to repayment. However, the repayment is on your agreed terms and timeframe.

How to Access Your Cash Value?

One way to access the liquidity in your policy is by taking out a policy loan against your cash value. ‘Against’ meaning that it does not decrease the policy’s cash value balance, it is simply a loan given by the insurance company.

The policy loan is paid back on an agreed-upon schedule. If there is an outstanding balance from a policy loan when the policyholder dies, then that amount is taken out of the death benefit. Before borrowing against your cash value, it is important to be sure it aligns with your financial plans.

The phrase ‘Infinite Banking’ is used often in permanent life insurance because the accessible cash value gives the policyholder the power to loan themselves money out of their policy.

Remember, it is only through permanent life insurance that cash value comes in your insurance policy.

To find out more on cash value read 6 Things You Should Know About Cash Value.

Read: The Whole Truth about Whole Life

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