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What Happens to the Cash Value of My Whole Life Insurance Policy if I Die?

One of the great things about whole life insurance policies is that they offer policy-specific benefits such as cash value. Whole life insurance is one of the most popular life insurance types because of the added benefits associated with the policies. It’s important to know ways to maximize your policy so you can give your beneficiaries the most financial protection while also potentially offering you additional resources while you’re alive.
 


Understanding Whole Life Insurance

Whole life, in comparison to term life, can cover you for the entirety of your life in return for a schedule premium paid to the insurance company. In contrast, term policies are usually for a specified term limit, such as five years, 10 years, or 30 years.1 In both term life insurance and whole life insurance, the death benefit is the amount of money paid to your beneficiaries. This amount is determined when you get your life insurance policy.1
 
Whole life policies in particular often have different benefits that may be available for you to take advantage of, such as cash value benefits. The cash value of a whole life policy is an additional amount of money that accrues as the policy is in-force and is usually able to be accessed by the owner of the policy while the insured is living. Cash value grows at different rates based on your policy terms, and withdrawal of the cash value may be subject to interest and other fees based on your loan terms.2 However, cash value can be a valuable tool built into your whole life policy that you can use to your advantage while still living and beyond.
 

When you pass away, the cash value of your life insurance policy remains with the insurance company in most cases, meaning the accumulated cash value funds aren’t paid out to your beneficiaries.

Using Your Cash Value to Your Advantage
 
Cash value accumulates within your policy over the years that you’re alive and paying your premiums.3
When you pass away, the cash value of your life insurance policy remains with the insurance company in most cases, meaning the accumulated cash value funds aren’t paid out to your beneficiaries. Instead, your beneficiaries receive the death benefit of your policy as outlined in the terms of your coverage. However, there are ways to capture more of the cash value of your policy.
 
Some companies may allow you to use the cash value accumulated toward the payment of life insurance premiums.3 The limitations, rules, and regulations for this varies from policy to policy. Another way to use your cash value to your advantage is to take out a loan or make a withdrawal. One word of caution: In most cases the death benefit is reduced less the remaining balance of your cash value loan, and loans may be subject to interest and other terms.
 
Final Considerations
 
Make a decision about what you plan on doing with your cash value in conjunction with your financial advisor and/or your insurance agent. The options listed above are subject to their own terms and have their own upsides and downsides. Additionally, these benefits and options vary from policy-to-policy, so be sure to consult your individual insurer to make a decision about which path you’d like to take.
 
  1. Investopedia, Insurance Policy Death Benefits and Cash Values, 2019
  2. Investopedia, 6 Ways to Capture the Cash Value in Life Insurance, 2020
  3. Forbes, What To Know About Cash Value Life Insurance, 2020