- Cash value is a policy asset
- Guaranteed and non-guaranteed values are different
- Loans affect the economics of the policy
Cash value is a feature of permanent life insurance, including whole life. In a traditional whole life policy, guaranteed cash values are specified in the contract. Participating policies may also receive dividends, but dividends are not guaranteed.
Cash value can provide flexibility, but it should be understood in the context of the death benefit. Policy loans generally use the policy value as collateral and accrue interest. Depending on the contract, outstanding loans and interest can reduce the death benefit available to beneficiaries. Withdrawals may also reduce policy values.
When reviewing an illustration, separate guaranteed values from non-guaranteed assumptions. A projection is not a promise of future performance. Ask what values are contractually guaranteed and what depends on dividends or other assumptions.
Surrendering a policy may produce taxable income if the amount received exceeds the policyowner's tax basis, subject to applicable tax rules. Loans can also create unexpected tax issues if a policy with gain later lapses or is surrendered. Consult a qualified tax professional for personal tax advice.
For most buyers, the first question remains whether the death benefit and premium structure appropriately solve the insurance need. Cash value is a secondary feature, not a substitute for a clear protection objective.
Discuss your specific situation
If you want help comparing the protection need, available options, and a premium or funding level that fits your budget, SummitLine can walk through the details with you.