With most life insurance policies, the money can only be accessed by your loved ones as a pay out upon your death.
However, life insurance with cash value gives you the opportunity to access the money while you’re alive.
It combines life insurance with a savings element, but how does this work?
What is cash value life insurance?
Life insurance with cash value is a life policy that includes a savings element, allowing a portion of your life insurance premiums to go towards a cash value.
It's also known as cash surrender life insurance as, if you surrender/choose to end your policy, the cash value is paid out to you.
It’s not common for policies in the UK to be sold with a cash value or surrender option, so it might be hard to find an insurer that offers this policy type.
How does cash value life insurance work?
Cash value life insurance works by providing you with life cover. You’ll pay monthly premium payments to keep the policy valid and a portion of your premiums is invested into stocks, bonds, or mutual funds by your insurer.
This enables the cash value to grow in value over time.
Typically, the funds from a life insurance policy can only be accessed if you die during the policy term and a pay out is made to loved ones.
However, cash value life insurance allows you to make use of the cash value while you’re alive through withdrawals or loans.
It can act as savings if you fall on hard times and need money to help you stay afloat.
How to withdraw money from life insurance policy?
Cash value life insurance gives you an opportunity to benefit from your policy while you’re alive. This could be through:
- Withdrawing money – you can withdraw money from your cash value. For example, if you needed savings to pay for a large expense you could use the cash value to cover this.
- Using the cash value to pay your premiums – you could use your cash value to cover the cost of your monthly premium payments.
- A loan – it could be possible to get a loan against your cash value. In this scenario you would be borrowing money from your insurer and the cash value would be used as collateral.
If the cash value is accessed while you’re alive it could impact the amount that’s paid out when you die.
If you decide to end (or surrender) your policy, the cash value is paid out to you.
Which types of life insurance can have a cash value?
Not all types of life insurance will include a cash value or savings element.
Life insurance policies are either term-based, which means they cover you for an agreed period and pay out if you die during this time, or they last for life (life assurance).
A cash value is only offered with some whole of life or permanent life insurance policies.
Can you cash in a life insurance policy in the UK?
Typically, in the UK, life insurance policies are sold with no cash in value.
This means it would be hard to find an insurer that offers a cash value life insurance policy.
What are the pros and cons of cash value life insurance?
| Pros | Cons |
|---|---|
|
Allows you to benefit from your policy while you’re still alive
|
Taking money out of your cash value means less is paid out when you die
|
|
Can act as savings during a time of need
|
Monthly premiums tend to be higher than other policy types
|
|
The cash value can grow over time due to interest and investment
|
There could be tax implications to taking money from your cash value
|
|
Potential for flexible use of funds in certain situations
|
If you end your policy to receive the cash value pay out, you’ll likely have to pay a surrender fee
|
| May provide peace of mind knowing there’s an accessible fund
|
Not a common option in the UK so you might struggle to find an insurer |
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