The cash value of a whole life insurance policy is the amount of money that is accessible to the policy owner to use while still alive. It can be accessed through a policy loan or by surrendering the policy. If the loan is payed back with interest as stipulated in the policy, the entire face amount will be paid upon death. If surrendered, the policy is terminated and would not longer pay a death benefit.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
When a life insurance company offers to provide a death benefit regardless of when the insured dies and charges a level premium as long as the policy is in force, the company is issuing a whole life policy. If you search the internet you can see many examples of mortality tables. The most obvious fact is that the number of people surviving at a given age reduces with every passing year. Another observation is that the rate at which they die accelerates until very few 99 year old males live to see 100.
If the life insurance company is going to provide a death benefit to that 99 year old for one year the cost would be at least half of the death benefit. That is, a $50,000 1 year term policy on a 99 year old (if such a policy were available) would cost in excess of $25,000.
A whole life policy offers that coverage at the same level premium they charged when the policy was started. The way that they do that is that they accumulate money from the higher premiums to offset the cost of insurance when the premiums would otherwise become astronomical. This money becomes the cash value of the policy, or the surrender value of the policy.
At any time the company is willing to exchange the surrender value of the policy in exchange for taking away the requirement that they pay the death benefit. Now, this cash value can be taken in a variety of ways so it isn’t really so cut and dry. The point is, when you relieve the company of their obligation to pay the death benefit, they will give you the cash surrender value.
It is the cash value that allows the company to maintain a level premium. Most whole life policies pass a point where the premium for the permanent plan is less than a newly issued 1 year term insurance plan .
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If the life insurance company is going to provide a death benefit to that 99 year old for one year the cost would be at least half of the death benefit. That is, a $50,000 1 year term policy on a 99 year old (if such a policy were available) would cost in excess of $25,000.
A whole life policy offers that coverage at the same level premium they charged when the policy was started. The way that they do that is that they accumulate money from the higher premiums to offset the cost of insurance when the premiums would otherwise become astronomical. This money becomes the cash value of the policy, or the surrender value of the policy.
At any time the company is willing to exchange the surrender value of the policy in exchange for taking away the requirement that they pay the death benefit. Now, this cash value can be taken in a variety of ways so it isn’t really so cut and dry. The point is, when you relieve the company of their obligation to pay the death benefit, they will give you the cash surrender value.
It is the cash value that allows the company to maintain a level premium. Most whole life policies pass a point where the premium for the permanent plan is less than a newly issued 1 year term insurance plan .