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Cash value life insurance is permanent life insurance with an investment option. Cash value is that part of your policy that earns interest, like a savings account. Policyholders may be able to withdraw money or even borrow from that cash value.
Types of cash value policies include:
- Whole life
- Universal life
- Variable universal life
- Indexed universal life
Term life, the most affordable type of insurance, does not contain a cash value.
Quick Look: The Best Cash Value Life Insurance
The Best Cash Value Life Insurance
Cash value life policies come in different types and the best choice for you may not be the same as that of your friends or neighbors. Here are our top picks and why they stand out from the pack.
The stakes couldn’t be higher than when buying life insurance to protect your family. Financial strength remains an important consideration. After all, you’re depending on an insurer to cover a claim that may be decades in the future. Northwestern Mutual routinely tops the charts for financial strength as measured by trusted rating agencies like AM Best, S&P Global and Moody’s.
As a mutual insurer, Northwestern is owned by its policyholders — service is its top priority. You’ll also find plenty of cash value options, including whole life, customizable universal life, and even an innovative single-premium universal life policy for worry-free coverage.
Online life insurance providers continue to grow partly because of convenience but also because online providers can be less expensive. Don’t write off brick-and-mortar agents altogether, though. If you prefer to discuss your need in person, look no further than State Farm, a trusted provider with over 19,000 experienced agents throughout the U.S.
You’ll find common cash value options at State Farm, including whole life and universal life. The company also offers Survivorship Universal Life Insurance and Joint Universal Life Insurance, both of which offer a cost-effective solution if you need to insure 2 people rather than just yourself.
Mutual of Omaha
Gerber's Grow-Up Plan is probably the best-known policy for children but Mutual of Omaha has a great product as well and often with lower premiums than its competitors.
Buying life insurance for kids can seem counterintuitive because they’re young and have less risk. However, because kids are young and healthy, insurability is nearly guaranteed and rates are super low.
Mutual of Omaha’s whole life policy for children offers lifelong coverage for kids as young as 14 with coverage amounts of up to $50,000. Premiums never increase, which helps ensure that coverage stays affordable. Mutual of Omaha also ranks well in recent J.D. Power U.S. Life Insurance Studies, earning 3rd place for overall customer satisfaction in 2019.
Not sure which type of cash value coverage suits you best or you think you may need multiple types of policies? It’s hard to beat the selection of products from Pacific Life.
Whether you’re considering universal life insurance, variable life insurance or even life insurance with long-term care benefits, Pacific Life offers several ways to customize your coverage. You can even pair your cash value coverage with an inexpensive term policy from Pacific Life to reduce your long-range coverage needs and reduce your overall costs as well.
An outstanding selection of products from Pacific Life also comes with the security of a company that’s been in the business for over 150 years and shows a long history of financial stability.
MassMutual offers several types of life policies, including term, universal and variable life, but its whole life insurance offering packs value into an easy-to-understand policy. As a mutual insurance company, MassMutual answers to its owners, the policyholders themselves. If possible, always give mutual insurers a closer look.
An easier-than-most application process helps you get covered quickly while avoiding the frustration that often causes people to postpone life insurance purchases. If you want to pair your permanent cash value policy with an affordable term policy, MassMutual’s Haven Life subsidiary is quickly becoming one of the most respected online providers.
A rock-solid whole life policy from MassMutual might only be a starting point. Over its more than 160-year history, MassMutual has been a pioneer and now offers an impressive range of financial planning and insurance products.
While Haven Life prides itself on its expediency and digital platform, through the years it’s formed a partnership with one of the most trusted insurance companies in the business, MassMutual.
Founded in 1851, with assets under management totaling more than $567 billion, MassMutual offers cash value life insurance such as whole, universal and universal variable policies.
- securely through Haven Life Insurance's websiteBest For:Under Age 64
Haven Term is a Term Life Insurance Policy (ICC21 Haven Term in certain states, including NC) issued by C.M. Life Insurance Company (C.M. Life), Enfield, CT 06082. In New York (DTC-NY) and California (DTC-CA), it is issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001.
What is Cash Value Life Insurance?
A cash value life insurance policy is a unique type of policy that provides both a death benefit and a savings or investment component. Over time, the policy builds cash value (hence the name) and becomes an asset in its own right.
There’s a lot to consider when you choose the best life insurance — a cheap life insurance policy may not offer a complete solution. Term life insurance is more common due to its lower premiums but it’s also temporary coverage.
Cash value policies have staying power. When you purchase a cash value policy, you’re buying permanent life insurance. You’ll be covered for your entire life or until the policy matures, typically between age 100 and 121.
How Cash Value Life Insurance Works
Cash value policies come in 3 main types, although you’ll find some additional variations. Nearly all permanent life insurance policies build cash value but each type may use a different mechanism to build value in the policy. Another commonality they share is that cash value policies can also offer a tax-sheltered investment.
Whole life insurance is the best known and most common of these cash value policies. You’ll pay a fixed-level premium for a whole life insurance policy, part of which pays for the insurance policy itself and part of which is invested by the insurer. The insurer then pays a fixed return. This builds cash value in the policy over time.
A well-designed whole life policy can be a great choice for people of any age. Specialty policies can provide lifetime protection for kids, while final expense policies offer affordable life insurance for seniors.
Other common types of permanent life insurance include universal life and variable life, the latter of which leans more heavily on investment performance. Both of these types of policies step up returns on the investment portion of your policy. These policies can also bring some risk, meaning you may have to pay a larger premium later if the investment underperforms or if the policy is underfunded. Variable life policies can even lose some cash value because the insurer doesn’t provide a safety net for investment performance.
It’s important to weigh risks, but universal life insurance and variable universal life can also reduce the overall cost of coverage. In some cases, cash value growth can even increase life insurance payouts.
Regardless of the type of cash value policy you buy, you can access the value in your policy in a number of ways. You may be able to borrow against your cash value or even use your cash value to pay premiums. You can also sell or redeem your policy if your needs change and the cash serves a greater benefit than the policy.
When Cash Value Life Insurance is Worth It
Whether a cash value policy is a fit for you and your family depends not just on cost but also on which type of policy you choose. If you need stable coverage and fixed premiums, a whole life insurance policy offers compelling value. You’ll pay more per dollar of coverage than the cost of a term policy, but your coverage can protect you for your entire lifetime.
Universal life brings flexibility in how you pay premiums but doesn’t use a guaranteed level premium. If the investment portion of your policy performs less than expected or the policy becomes underfunded, you may have to put some money in to keep the policy alive. Universal life can be a good fit, but a big consideration is whether you’ll have money to fund the policy if needed. If so, a universal life policy offers more flexibility and can be an effective way to pass wealth to heirs in a tax-advantaged way.
When Cash Value Life Insurance is Not Worth It
A cash value policy may not be the best fit for every situation. Premium costs and the risk of premium increases are the 2 primary considerations.
If your coverage needs are temporary, a term policy is a better option. For example, if your primary reason for purchasing coverage is to cover the mortgage or another expense with an expiration date, a term policy offers a more affordable solution in nearly all cases.
Perhaps a bigger consideration, and one that catches some people by surprise, is whether you can afford to put extra funds into the policy, as is sometimes required with a universal life policy. If your household isn’t in a strong cash position, a universal life policy or variable life policy can bring more risk than reward in a down market.
The best way to find out if a cash value policy is a fit for you is to speak with a trusted agent. Get a quote and discuss the pros and cons for your family is an important first step to make a purchase decision.
Types of Life Insurance Explained
Learn about term and permanent life insurance.
Term life insurance
You can choose from 2 basic types of insurance. The 1st and most affordable, term life, carries with it no cash value. Term life is the more popular type of insurance, allowing for lower premiums and greater death benefits. Term life is the insurance of choice for those looking for just the death benefit, not an investment vehicle.
Advantages to term life include paying lower premiums for greater death benefits. Why? Because term life policies are enforced only for a predetermined period of time. Having no cash value to them, providers don’t have to factor in equity withdrawals or loans. A term life policy is a straight-up gamble: the provider is betting that the policyholder will not need to cash in the policy. Ever. In return, the insurance company gets to keep all the premiums paid.
- No cash value
- No loan access
- Predetermined duration
Permanent life insurance
The 2nd type of insurance, permanent life, includes whole and universal life. Both these have a cash value and remain in place until the policyholder’s time of death. Permanent life insurance is more expensive than term, but premiums paid accrue interest over time.
Disadvantages to permanent life include higher premiums and lower death benefits. Permanent life insurance policies are more popular as an investment vehicle with an added backstop. It’s like having a savings account with a built-in death benefit to boot.
- Cash value
- Entire life coverage
- Tax-deferred gains
Both whole and universal life carry a cash value. What this means is that the premiums you pay go into a savings account. Over time, your policy gains in value and those gains are tax-deferred. There is no predetermined end. At the time of your demise, that’s when the death benefit gets paid.
Choose the Right Cash Value Life Insurance
About 60% of people in the U.S. have life insurance, but this statistic can be somewhat misleading. Group life policies now make up the largest percentage of life insurance coverage. These employer policies can be a great supplement to a well-designed financial plan, but they can’t provide the sturdy foundation you’ll find with the right cash value life insurance policy.
Start your search with an easy online life insurance quote — but don’t rush your decision. The cash value life insurance policy you buy today will protect your family and heirs for years to come.
Frequently Asked Questions
Is a cash value life insurance policy worth it?
If you’re making good money and expect to be doing so for quite some time, a cash value insurance policy like whole or universal life might just be the right investment for you. If you’ve already maxed out your other investment vehicles and are looking for more tax-deferments, these may be sound investments for you.
Does term life carry a cash value?
Term life does not contain a cash value like whole or universal. Term life is the simpler of the 2 types of insurance policies. It’s cheaper, too. If you’re looking for basic protection with low premiums and a high death benefit, term life is the best choice for you. Term life is cheaper for just that reason: it has no cash value. If you outlive the term of the policy, the life insurance company keeps all the premiums.
Benzinga crafted a specific methodology to rank life insurance. To see a comprehensive breakdown of our methodology, please visit our Life Insurance Methodology page.
About Philip Loyd, Licensed Insurance Agent
Loyd has written for Forbes.com, Red News Real Estate, Therapist.com, IRA.com, McGraw Hill, TheStreet.com, WikiHow, GOBankingRates.com, S.R. Education, Society of Petroleum Engineers and BioTech Fortunes. He is a licensed insurance agent and financial advisor with both his series 6 and 7 certifications.