Have you heard about Nelson Nash, Infinite Banking, Becoming Your Own Banker, Bank on Yourself, and want to learn more? Or maybe you’re already using Infinite Banking, but would like to be able to explain it better to your spouse, your parents, your children, business partner, or friends. We're continuing our series on the basics of the Infinite Banking Concept and answering your "what" questions. Today, we're unpacking: What is the Cash Value of Life Insurance?

https://www.youtube.com/watch?v=YVAk0pT7kgY

So if you want to see how cash value works as a living benefit that enhances your life today … tune in now!

Table of contentsWhat is the Cash Value of Life Insurance?How is Cash Value Related to Death Benefit?What is the Net Present Value of a Future Death Benefit?What Makes My Cash Value Grow?What is the Effect of Guaranteed Interest on My Policy?What is the Benefit of Having Cash Value?What Part of the Policy Can I Borrow Against?What Happens to My Death Benefit When I Take a Policy Loan?What Happens to My Principal and Interest on a Policy Loan When the Loan is Repaid?What If There Is An Interest Balance Leftover?What Can I Do With My Dividends?Book A Strategy Call

What is the Cash Value of Life Insurance?

What is the Cash Value of Life Insurance? Cash value is the equity portion of your whole life insurance policy that you can access and use. It is a part of your death benefit, not separate, and you can access and use it during your lifetime.

Cash value accumulates in a few ways: premium payments, guaranteed interest, and non-guaranteed dividends. 

How is Cash Value Related to Death Benefit?

Because cash value is like the equity of your death benefit, the value represents the accessible portion of your death benefit. As your policy matures, it rises to meet your death benefit. So your cash value is designed to equal your death benefit by the time it endows. The current endowment age is 120. Since endowment represents your ability to access the full value of your death benefit, the policy pays out to you and the contract is complete.

However, you’re still guaranteed to receive the full death benefit if you pass away at any point before endowment. That’s the power of a whole life insurance contract. But because the cash value is equity, not a separate account, the payout is not cash value + death benefit. You receive the full death benefit. 

What is the Net Present Value of a Future Death Benefit?

The Net Present Value of your future death benefit is another way of describing the equity in your policy. The “net present value” is the current present amount of your cash value account, which is a portion of your future death benefit. 

What Makes My Cash Value Grow?

Over time, your cash value grows as a product of your premiums, interest, and dividends. Your premium–the payment you make to keep your insurance in place–is the main source of cash value growth. However, insurance companies also guarantee that they will pay a certain amount of annual interest, as well as any company profits in the form of dividends.

The cost of the insurance itself affects the growth. For example, premium payments must first cover the cost of insurance. When you pay a premium, that money contributes to payroll, investments, and commissions. The remainder is what you have available in your cash value. Since the cash value is the net present value of a future death benefit and the risk to the company lessens with time. Think about it: the risk to the insurance company is greatest when you open a policy. There’s a chance, however small, that you only make one premium payment before you pass away. But because the policy is in force, the company must pay the full death benefit. Over time, you pay more and more into the policy, so the actual costs are decreasing and instead contribute more heavily to your cash value. 

Another way to grow your cash value is through guaranteed interest.