Cash Value in Whole Life Insurance

Cash value growth

A portion of every one of your premiums goes into your cash value account, and your cash value accumulates interest. The premium and interest rate are both fixed in your life insurance contract, so your cash value is guaranteed to have reached a certain amount at any given time.

Some whole life insurance policies are said to "participate." Owners of participating policies receive dividends from the insurer, paid to their cash value.

Accessing cash value

Whole life insurance provides three methods to access a policy's cash value. (See "Cash value" for greater detail on each of the following.)

• Surrender — Terminate your policy and take the cash value.
• Policy loan — Your insurer provides a loan, with the policy as your collateral.
• Collateral assignment — Use your policy as collateral for a loan from another institution.

Endowment

Cash value in whole life insurance policies continues to grow until the cash value is equal to the policy's face amount (death benefit), at which point, the policy is said to mature. Maturation means that the policy ends and pays out it death benefit. Thus, the policy is not really guaranteed to continue for a lifetime, but it is guaranteed to pay a death benefit.

Most policies are designed to mature when the insured reaches age 100. In these days of increased life expectancy, however, policies that mature at age 125 can also be found.