The cash value is a "living benefit" of your policy, meaning you can access it while you are still alive. This is a key advantage of whole life insurance. The most common ways to access the cash value are:
Policy Loans: You can borrow money from the insurance company, using your cash value as collateral. These loans typically don't require a credit check, and interest rates are often more favorable than those on personal loans. If you don't repay the loan, the outstanding amount (plus interest) will be deducted from the death benefit when you die.
Withdrawals: You can make withdrawals from the cash value. This will directly reduce the policy's death benefit. If the amount you withdraw is more than the total premiums you've paid in, the excess amount may be taxable.
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Paying Premiums: Once you've accumulated enough cash value, you may be able to use it to pay your policy premiums, which can be a valuable benefit in retirement or if your income decreases.
Surrendering the Policy: You can terminate the policy entirely and receive the cash surrender value (the cash value minus any fees or outstanding loans). However, this will end your life insurance coverage, and you may face a surrender charge in the early years.
Cash Value vs. Death Benefit
It's important to understand that in most traditional whole life policies, the cash value and the death benefit are separate. When you die, your beneficiaries typically receive only the death benefit. The accumulated cash value is usually kept by the insurance company unless you have a specific rider or a policy that allows for it to be added to the death benefit.
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