Does Term Life Insurance Have a Cash Value?

Does term life insurance have a cash value? The short answer is: no. Only permanent life insurance builds cash value. Even though term life doesn’t have cash value, we’ll go over its benefits below as well as the benefits of cash value, which may make you consider a permanent life policy instead.

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Does Term Life Insurance Have a Cash Value?

No, as we mentioned above – term life does not contain a cash value component. But there are lots of other benefits you can get from a term life policy. Here’s what we love about them:

Happy mom and dad with their young daughter sitting on dad’s shoulders

Most affordable type of life insurance coverage. This is the cheapest policy type you’ll find, period. If you’re on a budget or not sure how long you can afford coverage, opt for term life. It’s often cheaper than you expect, so you can get at least some coverage in place to protect your loved ones.
Simplest type of life insurance coverage. If you don’t want to spend a lot of time thinking about or managing your policy, term life is the right choice. It’s a very simple contract: you make payments, and if you pass away within your policy’s term, the insurer pays the full face value of the policy to your beneficiary(ies). Easy peasy. Other kinds of life insurance – the kinds that have a cash value – offer more benefits, but also come with a lot more choices and fees that can be confusing. If you know that’s not what you want or need, stick with term life.
Living benefits. More insurers are making it possible to access the death benefit during your term if you need it. Some of the qualifying reasons? Terminal illness, chronic illness, critical illness, and long-term care, to name a few. Of course, permanent life policies offer living benefits, too, but you don’t have to opt for lifelong coverage to benefit.
Great for temporary needs. If you only need coverage for a limited time, to cover a specific financial obligation, term life is your best bet. Whether it’s the length of a mortgage, a business agreement, or a divorce settlement, term life provides the coverage you need – and no more.

➡️ Is term life right for you? And how much coverage do you need? We can help you figure it all out. Call our licensed life insurance advisors at (800) 823-4852 or click the button below to get a free quote now:

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What Kind of Life Insurance Has a Cash Value?

Okay, so we know that only permanent policies have a cash value. But the term “permanent coverage” is an umbrella term that actually refers to a handful of policy types. They all grow cash value, but at different rates and in different ways. Depending on your needs, you can choose any of these policy types of start building cash value:

Close-up of a man in a suit holding a handful of hundred dollar bills, symbolizing the cash value of permanent life insurance

Whole life. This is the simplest type of permanent coverage. With whole life, your cash value grows at a set interest rate, fixed when you buy your policy. It’s usually pretty low (expect 2%-3%), but it’s guaranteed for the length of your policy. No matter what happens with the Fed and their decisions to raise or lower interest rates, your guaranteed rate remains the same as long as you have your policy (ideally, for the rest of your life).
Universal life. This type of coverage gives you flexibility when it comes to payment amounts and due dates. With universal life, as long as you keep enough money in the policy so that it meets the insurer’s stated minimum to cover the cost of coverage, you control how much you pay and when. Want to overfund it and grow your cash value faster? You can. Have seasonal work and can only make payments during your busy season? You can.
Indexed universal life. This type of coverage gives you more ways to grow your cash value faster than with whole life. With indexed universal life (IUL), you can tie your cash value gains to a market index. You’re not investing anything in that index – you’re just letting your insurer give you more interest when that index does well. When it does poorly, you’ll get a low, guaranteed rate of interest or no interest, depending on the insurer.
Variable universal life. This type of coverage gives you a different way to grow your cash value faster than with whole or universal life. With variable universal life, you can actually invest some of your cash value into the options your insurer provides. Options usually include stocks, equity funds, and money market funds. Of course, this means you risk losing what you invest, so it’s a trade-off: the chance for growth comes with personal responsibility for your choices.

➡️ Which type of permanent life insurance is right for you? We can help you figure it all out. Call our licensed life insurance advisors at (800) 823-4852 or click the button below to request a free quote:

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What Is Cash Value?

Cash value is a type of savings account that’s attached to your policy. It’s funded in two ways:

With a portion of every payment you make. Every time you make a payment, your insurer takes out the cost of your coverage, plus any administrative fees. Whatever’s left over goes into your policy’s cash value account.
With interest payments credited by your insurer. Based on the policy type you selected, your insurer will credit your account with regular interest payments.

Mom and dad getting a quote online for permanent life insurance with cash value while their daughter sits in mom’s lap

Of course, the most important reason to choose a permanent policy is because of the lifelong coverage. No matter when you die, your beneficiary(ies) are guaranteed to receive the death benefit 100% tax-free. As long as you keep your policy current, you know your loved ones are going to get that cash payout.

Cash value is a good thing to have, in addition to that guaranteed death benefit. Some insurers let you pass it to your beneficiaries along with the death benefit, but others don’t – or charge for this ability. Be sure you pay close attention to your insurance contract so you know whether your cash value is “use it or lose it.” If yours is non-transferrable, make sure you use it! Once you have enough built up, you can even use it to make your future payments. If you don’t want to do that, you can withdraw cash to use any way you like – there are no restrictions or rules on what you can do with that money. You can use it to travel, fix up the house, pay a child’s college tuition, or supplement your existing streams of income during retirement.

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Is Cash Value a Financial Asset?

Yes!

Term life insurance can’t be considered a financial asset since it doesn’t have cash value, but permanent life can. Your cash value is an asset you can borrow against or withdraw from to use in any way you see fit. It’s also not counted against college-bound students applying for student aid on the FAFSA form (Free Application for Federal Student Aid). Here are three ways you can access that cash value:

Coins falling into a piggy bank, symbolizing how cash value is a financial asset

Policy loans. You can borrow against your cash value with your insurer. This loan won’t appear on your credit report, and you don’t technically have to pay it back. Your insurer will charge a small amount of interest, however, which makes it a good idea to pay back some or all of the loan if you can. There’s no penalty if you don’t, but any outstanding loans will be deducted from the death benefit before it’s paid out to your loved ones.
Partial withdrawals. You can withdraw money from your cash value – in the insurance world, this is called a “partial surrender.” Your insurer will charge a small fee for this, but there’s no limit on what you can do with that money.
Full surrender. This is what it’s called when you cancel your policy. Although we don’t advise it, if you were to call the insurer and cancel your policy, you would be entitled to the cash value minus any surrender fees they charge. If it were to come to this, please call us first – if you’re cancelling because you can’t afford the policy, we can try to find a cheaper one for you so your loved ones still have some coverage in place.

If you’re looking ahead, cash value can be a great asset to have as part of your overall financial portfolio. If you choose whole, universal, or indexed universal life, you’re guaranteed not to lose any money. That’s one way to hedge against assets that do have the potential for loss, like stocks. If you choose variable universal life, you have the chance to grow your cash value faster, but with a risk of loss if your chosen investments perform poorly. It all depends on your personal risk tolerance and the kind of asset that would best round out your portfolio. But no matter which type you choose, you’ll be building an asset that you can access for any reason later in life!

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