Understanding Cash Value Growth in Permanent Life Insurance

Permanent life insurance policies come with a cash value component, which grows over time. Here’s a closer look:

Whole Life Insurance Cash Value

• Growth: The cash value grows at a fixed interest rate set by the insurer. This predictable growth is often slow but stable.
• Dividends: Some whole life policies from mutual insurers (owned by policyholders) offer dividends that increase cash value or death benefit. Dividends are not guaranteed but can be a valuable bonus.

Universal Life Cash Value

• Growth: Grows based on a current interest rate that the insurer adjusts, often tied to bond yields.
• Flexibility: You can adjust premium payments and death benefit, but cash value is impacted by both changes and market interest rates.

Variable Life Cash Value

• Growth: Cash value depends on the performance of investment sub-accounts (similar to mutual funds). Higher potential returns come with higher risk.
• Management: Policyholders often need to actively manage their investments, and there is a risk of losing cash value if markets perform poorly.