Is There Cash Value For Term Life Insurance

The quick answer is no:  Term life insurance does not have a cash value. The cash value component is associated with permanent life insurance policies.

Lets have a look at the differences between term life insurance and permanent life insurance, also called cash value life insurance.

For one thing term life insurance is a type of product, and on the other hand permanent life insurance encompasses many types of life insurance products.  One common type of permanent life insurance is Whole life insurance, and there is variable life insurance, universal life insurance, and variable universal life insurance to make things more confusing.

Basics Of Whole Life  Policy

Basically, cash value life insurance products are made up of two elements: the cash value, and a term life insurance product.  Cash value life insurance actually has a term life insurance policy included in it. How exactly does this all come together? For instance,  you buy a whole life insurance policy for $200,000. At the start of your policy’s lifespan, it has two elements: a $200,000 term life insurance policy and  $0 cash value. Through the course of time, you will pay monthly premiums, some of these premiums will go into the cash value. The cash value will grow, and the benefit from the term life insurance policy will decrease.

For example you have been paying monthly premiums for 10 years into the lifespan of your policy. It stands to reason, you may have put in 25,000 into the cash value of the policy.  In the event you die, your death benefit will be $25,000 from the cash value and $150,000 from your term life insurance policy. At some point, the cash value will be the same as the  original policy amount, and the term life element will no longer be part of your policy.

Is Term Life Insurance A Better Option

So is there a cash value to term life insurance? No, because it’s not permanent life insurance, which has cash value as well as term life insurance.  With term life insurance you pay your premiums for the life of your policy, and if you don’t die, the policy ends at the end of your term. Term life insurance is easier to understand and generally is less costly  than a similar permanent life insurance policy, which is why term life insurance is usually a better option for most people.

Regardless, because there isn’t term life insurance cash value, doesn’t mean you can’t borrow against your life insurance policy to pay for unexpected expenses.   However, many policy holders of permanent life insurance find then to expensive and end up cashing in the policy and the cash value early. If permanent life insurance doesn’t fit into your personal financial situation, there are other types of investments that can work for you.   In the end it is wise to purchase insurance that you can afford and fits your needs.

 

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