That phrase вЂњcash valueвЂќ sounds cool, doesnвЂ™t it? Maybe youвЂ™re thinking youвЂ™ll have your own personal ATM that spits out cash whenever you need it. Oh, and variable life insurance comes with crazy-high fees, so donвЂ™t expect to see much cash value in the first three years! How Does Cash Value Life Insurance Work? So youвЂ™d be making the call, and itвЂ™s a risky one if youвЂ™re not always keeping an eye on your investments. This could be in stocks or bonds, for example. Variable life insurance serves up an extra helping of complication because unlike regular universal life and whole life-both of which can have a guaranteed rate of return-variable life allows you to decide how your cash value is invested. These types are: variable universal life, guaranteed universal life and indexed universal life. When it comes to how your money will build up over time, it all depends on the type of universal life insurance you have (remember when we said it was complicated?). And if youвЂ™ve built up enough of that cash value over time, this could be used to reduce your premiums (more on this later). If youвЂ™re feeling flush, you could 'overpay' your monthly premium and have the difference go into the cash value side of your policy. This means you have some control over how much you pay in premiums. Universal life insurance is different (and more complicated) when compared to whole life because it comes with вЂњflexibleвЂќ premiums and death benefits. The longer your policy lasts, the more cash value youвЂ™ll build up. You can expect your rate of return to hover around 2%-so itвЂ™ll basically just keep up with inflation. A slice of that premium will go into the cash value part of your policy, and that canвЂ™t change either.

YouвЂ™re stuck paying that premium amount every year (or month) for, well, your whole life. Once you decide on your premium, that amount gets permanently specified in your policy. Whole life insurance is the least flexible of the three choices weвЂ™re going to cover. HereвЂ™s a breakdown of each type of cash value life insurance. Types of Cash Value Life InsuranceД®ach of these policies works a little differently-and thereвЂ™s a lot of fine print to wade through. How much it grows really depends on the type of cash value policy you buy, and what its returns are. So, youвЂ™re paying for two things here-the life insurance part (the bit that covers your family if you die) and the cash value part (the savings account that supposedly grows your money over time).

What Is Cash Value Life Insurance?Д¬ash value life insurance is a type of life insurance policy thatвЂ™s in place for your whole life and comes with a sort of savings account built into it. So, what is cash value life insurance? And whatвЂ™s the cash value of a life insurance policy? Most importantly, is it worth the effort? WeвЂ™ll help you cut through the confusion and find the answers youвЂ™re looking for. (Definitely not on that giant, skyscraper-size beanstalk level.) ThatвЂ™s because life insurance companies arenвЂ™t great at investing and should stick to what they do best: replacing your income when you die. Remember Jack and those magic beans of his? Well, cash value life insurance promises magic beans-like, you know, cash-but it turns out those beans donвЂ™t grow into much at all.

Principal definition in life insurance