What Types of Life Insurance Build Cash Value?
When shopping for life insurance, some policies do more than just provide a death benefit—they also build cash value over time. This feature can offer financial flexibility, long-term savings, and even borrowing power. In this post, we’ll explore the types of life insurance that include cash value and how they work.
What Is Cash Value in Life Insurance?
Cash value is a living benefit available in certain types of permanent life insurance policies. As you pay your premiums, a portion goes toward building a savings component within the policy. This cash value grows over time—either at a fixed or variable rate—and can be accessed through loans or withdrawals.
It’s important to note: Term life insurance does not build cash value.
Life Insurance Policies That Build Cash Value
Let’s break down the main types of life insurance that offer this benefit:
1. Whole Life Insurance
Whole life is the most well-known permanent life insurance option. It offers:
Guaranteed cash value growth
Fixed premiums
Lifetime coverage
The cash value in a whole life policy grows at a steady, predictable rate. You can borrow against it or withdraw funds—but keep in mind that doing so can reduce your death benefit.
Best for:
Long-term planners who want both insurance and savings
People looking for predictable growth
Estate planning or legacy building
2. Universal Life Insurance (UL)
Universal life insurance offers flexible premiums and death benefits, and includes a cash value component that earns interest.
Key features:
Cash value grows based on market interest rates (often tied to a benchmark rate)
Flexible premium payments
Adjustable death benefit amounts
UL is more flexible than whole life but may offer less predictable growth, depending on the insurer's performance and interest rates.
Best for:
Individuals who want lifelong coverage with the ability to adjust their policy
Policyholders comfortable with a little variability in return
3. Indexed Universal Life Insurance (IUL)
Indexed universal life is a variation of universal life that ties cash value growth to a stock market index, like the S&P 500.
Pros:
Upside potential when the market performs well
Downside protection through growth caps and floors
Tax-deferred cash value accumulation
However, gains are usually capped, and the structure can be more complex than standard universal life.
Best for:
Savvy investors looking for growth potential
Those who want some market exposure with limited downside risk
4. Variable Life Insurance
Variable life insurance allows you to invest the cash value in mutual fund-like subaccounts. The returns—and risks—are tied directly to market performance.
Features:
High growth potential
Flexibility in investment choices
Higher risk due to market exposure
Because of its complexity and investment component, variable life is best suited for experienced investors comfortable with risk and reward trade-offs.
Best for:
People who actively manage their finances
Those seeking long-term growth with the potential for higher returns
Accessing Your Cash Value
Once your policy has built up enough value, you can usually access it in one of three ways:
Policy Loans – Borrow against the cash value tax-free (interest applies).
Withdrawals – Take out a portion of the cash, possibly reducing your death benefit.
Surrendering the Policy – Cancel the policy and receive the accumulated cash (minus fees).
Talk to an agent before tapping into your cash value—it can impact your coverage and may have tax implications if not handled properly.
Cash Value Isn’t Free—Here’s What to Consider
Higher Premiums: Cash value policies usually cost more than term life.
Fees and Expenses: Some policies include management or administrative fees.
Loan Interest: Policy loans aren’t “free money.” They accrue interest and reduce your death benefit if unpaid.
Slow Growth in Early Years: It often takes several years before significant cash value accumulates.
How Hixson & Malinowski Insurance Can Help
At Hixson & Malinowski Insurance, we help you look beyond the surface. Whether you’re seeking basic protection or a policy that builds long-term financial value, we compare multiple carriers and options to find the best fit for your goals.
We’ll walk you through:
How cash value policies work
What type fits your financial strategy
How to balance coverage with affordability
Conclusion
Life insurance that builds cash value can do more than protect your loved ones—it can also serve as a financial asset during your lifetime. Whether you’re looking for stability, growth, or flexibility, there’s a policy type designed to meet your needs. Talk to Hixson & Malinowski Insurance today to explore your options.
