Cash-Value Life Insurance

Cash-Value Life Insurance

A type of life insurance policy that pays out upon the policyholder's death, and also accumulates value during the policyholder's lifetime. The policyholder can use the cash value as a tax-sheltered investment (the interest and earnings on the policy are not taxable), as a fund from which to borrow and as a means to pay policy premiums later in life, or they can pass it on to their heirs. Whole life, variable life and universal life are all types of cash-value life insurance. Cash-value insurance is also known as permanent life insurance because it provides coverage for the policyholder's entire life.

The other major category of life insurance is called term insurance, because it is generally in force only for a period of 10 to 30 years or until the policyholder cancels it. Cash-value insurance has higher premiums than term insurance because part of the premium pays for the death benefit coverage and part of it goes toward the policy's cash value. Cash-value life insurance is often criticized because investment options may be limited and not as good as what an investor could get on his or her own.


Investment dictionary. . 2012.

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