Jeffrey Manola is an experienced life insurance agent and the founder of Top Quote Life Insurance. His mission when he created Top Quote Life Insurance was to provide online consumers searching for life insurance with the absolute best quotes for term life insurance, permanent life insurance, no medical exam life insurance, and burial insurance. Not only does he strive to provide you with the ...

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Written by Jeffrey Manola
Founder & Licensed Agent Jeffrey Manola

Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insur...

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Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years Leslie Kasperowicz

UPDATED: Nov 4, 2020

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Are you considering purchasing life insurance, specifically cash value life insurance?

Life insurance can be a tricky thing to understand and decide on.

However, taking the leap and finding the right life insurance policy to invest in could be a lifesaver for you or your beneficiaries in the future.

Fortunately, we put together a guide to cash value life insurance to help you decide if it is right life insurance coverage for you.

Check out what we found!

Looking to compare life insurance policies? We can help. Enter your ZIP code to get free quotes from multiple insurers.

What Is Cash Value Life Insurance?

Cash value life insurance by definition is a type of policy that relinquishes funds once the policyholder died.

This life insurance policy gains interest during the policyholder’s life and lasts until their death. Thus, this type of life insurance falls under the category of “permanent” life insurance.

You can use cash value life insurance payouts as an investment, as earnings from this type of life insurance are not taxed.

You can also use this type of policy to fund other policy premiums as well. It can also serve as an inheritance for the policyholder’s family or business too.

Cash value life insurance has many variables.

The cost of the fixed premiums and the interest it promises to accrue over time vary significantly. Personalized bells and whistles included in the policy can vary greatly as well.

These variables themselves have pros and cons.

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How Cash Value Life Insurance Works

Before you get into the cash value life insurance pros and cons, it helps to understand just how this type of life insurance policy works.

Life insurance policies can be broken down into three different types:

  • Universal Life
  • Variable Life
  • Whole Life

All cash value life insurance policies are considered “whole” or “permanent” life insurance. This means it benefits you for the entirety of your life.

This differs from other life insurance policies that only last for portions of one’s life otherwise known as term life insurance.

IMPORTANT: Term life insurance does not accumulate cash values.

Cash value life insurance provides a benefit of death. A benefit of death is a kind of payout that is given to your next of kin or heirs.

Another benefit of this type of insurance is the savings aspect. This can be used as an investment or fund.

Many cash value life insurance policies offer fixed level premiums that don’t change. This means that they accumulate interest over time without being taxed.

As one’s life insurance account increases, the insurer is able to make money off of the account’s cash value. Any heirs or next of kin benefit from the death benefit payout.

Cash Value Life Insurance Pros And Cons

There are many cash value life insurance pros and cons to consider and weigh before applying for a life insurance quote.

Advantages Of Cash Value Life Insurance

There are many benefits to cash value life insurance, and may policyholders consider it to be a superior form of life insurance.

Death Benefit

More so than other types of life insurance, cash value life insurance allows one to gain the largest possible death benefit for the most inexpensive premium upon first getting the policy started.


Short-term or “temporary” term life insurance is fairly self-explanatory. It doesn’t last for the duration of the policyholder’s life.

If you’re in your fifties, cash value life insurance is a superior policy to use.

Tax Purposes

As we mentioned previously, cash value life insurance is not taxed.

IRC Section 101(a) allows for death benefits of cash value life insurance policies to be paid out without the requirement for taxing. It doesn’t matter who or what the death benefit goes to, whether it is a child, business, estate, etc.

Cash value life insurance policies allow for tax-free withdrawals during the lifetime of the policy as well.

While this will reduce your cash value life insurance policy’s overall value, this can still be a benefit.

There aren’t any fine print restrictions when it comes to taxing cash value life insurance, either.

There are no passive income tax penalties (from the Affordable Care Act) for these types of policies. And any withdrawals from your cash value life insurance policy will not be taxed as income for Social Security benefits either.

If you wish to surrender your policy, it can be exchanged with another insurance company without being taxed.


Cash value life insurance policies can be altered and adjusted to increase death benefits annually.

Credit methods such as no-lapse guarantees, stock index, and dividend assumption can be adjusted with a cash value life insurance policy.

Furthermore, cash value life insurance policies can use riders for long term care, disability waivers, and other enhancements.


Believe it or not, life insurance companies are one of the most competitive industries around.

Insurance companies are their products are fiercely competitive in the United States. This means that life insurance policies, products, prices, and services range immensely for your tailored custom needs.

Whether you need something tailored specifically to finances or specific protections, you’ll likely be able to find a cash value life insurance policy that’s close to perfect for you.

This is not so much a benefit of cash value life insurance specifically as it is a benefit of life insurance policies in general in the United States.

Legal Benefits

Life insurance is a concrete contract. An insurance company has to abide by the policies and rulings outlined in the contract of your cash value life insurance policy.

Furthermore, insurance companies are regulated statewide and federally. This means that they legally have to save their assets to pay out when a cash value life insurance policy ends.

Guarantee Funds

Guarantee funds are state mandated funds that must be kept by insurance companies so that no matter what hits the insurance company may take, it is still capable (and required) to pay your death benefits when your policy ends.

Furthermore, you have a legal right to transfer the ownership of your cash value life insurance policy to somebody else as well as the right to change the beneficiary to a different one.

You also have the right as a policyholder to transfer your policy to avoid a debt obligation to a person or financial entity and the right to withdraw a full policy’s death benefit value and close the account completely.

Downfalls Of Cash Value Life Insurance

Like any life insurance policy or insurance policy in general, there are always a few downfalls.

Death Benefit

While you can get your cash value life insurance pretty inexpensively at first, this doesn’t necessarily mean that it is the cheapest possible insurance policy.

As you age, your premiums will likely increase.


Short term life insurance may be a better, less expensive alternative to cash value permanent life insurance if you just need coverage for a period of time, say ten to twenty years.

If you are younger than fifty, cash value life insurance may not be necessary.

Premium costs

Short-term or temporary life insurance premium payments are applied completely to the overall cost of the life insurance policy.

Cash value life insurance policy premiums are not.

Guarantee Funds

Like we mentioned above, insurance companies have no choice but to pay you when your policy ends under federal and state laws.

However, there are ways around this, although they are rare.

To be completely sure your life insurance company is strong enough to not seek out loopholes to avoid paying you, there are steps you can take:

  • Apply for a quote.
  • If a quote is favorable, follow up with the company.
  • Ask for the company’s A.M. Best Financial Strength rating.

This rating is a number based on multiple rating agencies to review the strength of a life insurance company and subsequently the cash value life insurance policy in question.

It’s unlikely and difficult for life insurance companies to find loopholes around legal obligations to pay you your death benefits, but it is always better to be safe than sorry.

Top Quote Life Insurance only works with companies with an A.M. Best rating of an (A) or better.

I Want To Apply For Cash Value Life Insurance. How Do I Begin?

Now that you’ve evaluated cash value life insurance pros and cons, you may be wondering what the next steps should be in getting cash value life insurance to benefit you and your family.

First, look into top life insurance companies.

Request a couple free quotes to weigh the pros and cons of each company and what they have to offer.

As mentioned above, always ask for an up to date Financial Strength rating of the company you may be working with.

Take advantage of life insurance resources to read more into how different policies work and how to choose the right one.

Looking to compare life insurance policies? We can help. Enter your ZIP code to get free quotes from multiple insurers.