Cash is crucial. When finances are tight, there's nothing better than having some cash on hand. This explains why the cash component of a whole life insurance policy is a very useful secondary benefit. While the primary benefit of a whole life policy is to provide death benefits to your loved ones, it comes with advantages such as tax-free loans and collateral uses that can help you in tough times.

Here's how it works: When you make a premium payment on your whole life policy, a portion goes toward the cash value so that it grows over time. You can access the cash value during emergencies through withdrawals or policy loans, or even have it applied toward premiums, making it a versatile financial tool.1

This potential of the cash value sets it apart from term life insurance.

The benefits of whole life insurance cash value

Whole life insurance cash value offers several key benefits that make it a reliable financial asset:

  • Reliability: The cash value grows at a guaranteed rate. Unlike stocks and bonds, whole life insurance cash value offers consistent growth with minimal risk. Also, as long as you pay your premiums, your policy won’t expire, which means you can have reliable coverage for the rest of your life.
  • Flexibility: Policyholders can access their cash value through withdrawals, loans, or policy surrender, making it a useful source of funds for emergencies, retirement income, or major expenses.1 If offered, dividends may be used for premiums, extra coverage, or cash withdrawals. Another useful feature: your cash value grows tax-deferred, which means you won’t pay taxes on the money you invest until you withdraw funds.
  • Stability: Unlike stocks or other volatile investments, the cash value won’t be affected by market fluctuations. This makes it an excellent option for those looking to balance their portfolio with a safe, guaranteed asset.

How the Cash Benefit of Whole Life Insurance Works

How to use the cash value for financial support

One primary value of whole life insurance is the ability to take tax-free loans against the cash value, using it as a source of liquidity without the loan being taxable. Keep in mind that the unpaid loans may reduce the death benefit. Taking a loan from your cash value life insurance policy doesn’t require credit checks.2

You can use the policy as collateral for a loan without losing your coverage. However, you will need to repay the loan with interest to prevent the policy from lapsing. You can also make withdrawals from the policy, but they may be subject to taxes if they exceed the amount paid in premiums.

You may also use the cash value to pay insurance premiums if you're facing financial hardship or unexpected costs. As long as there's enough cash accumulated in the policy, it can cover your premium to keep your insurance active.

However, if you need to, you can cancel your policy and get back the cash value you've put into it, minus any fees from the insurance company. Be sure to check the details because sometimes these fees can be high, and you might also get hit with penalties. Surrendering the policy is obviously a good choice if you have more urgent uses for the money, such as emergency medical expenses.

Some policies offer accelerated benefits in emergency situations, letting policyholders access their death benefit in cases of terminal illness or for end-of-life care.

Types of life insurance policies with cash value

Life insurance policies with cash value provide both a death benefit and a savings component that grows with time. Several types of life insurance offer cash value, each with unique features:

  • Whole life insurance: Offers lifelong coverage with fixed premiums and guaranteed cash value growth. Also, you might earn dividends, which can be reinvested, used to pay for premiums, or withdrawn from the policy.
  • Universal life insurance: Offers flexible premiums and death benefits, with cash value growth based on a fixed interest rate set each year by the insurer. This allows you to adjust payments as your financial situation changes.
  • Variable life insurance: Allows you to invest your cash value in multiple accounts, similar to mutual funds. While these offer the potential for higher returns, they also come with investment risk.
  • Indexed universal life insurance: Links cash value growth to a stock market index, like the S&P 500. While gains are subject to caps and floors, this policy type offers the potential for higher returns than traditional universal life, while still providing some protection against market downturns.

Each type of policy caters to different financial goals, offering a balance between guaranteed growth, flexibility, and investment potential.

Final takeaway

Although you can use several types of life insurance policies for cash value, do your research before deciding which life insurance policy is right for you.

Incorporating cash value whole life insurance into your long-term financial plan can provide stability, flexibility, and valuable growth opportunities. Whether you use the cash value in whole life insurance to supplement retirement income or cover unexpected expenses, these policies can be a powerful tool to help you achieve your financial goals.

If you are still not sure what type of cash value policy you need, fill out the form. A financial professional from Mutual of Omaha will reach out to you to help you understand your options.

Frequently Asked Questions

What happens to the cash value when a whole life insurance policy matures?
When a whole life insurance policy matures, your insurance company may pay out the value of the policy to you as the policyholder instead of your beneficiaries. Whole life insurance policies usually mature at ages beyond average lifespans (100 or 121), making maturity unlikely.
What happens to the cash value if I stop paying premiums on a whole life policy?
If you stop paying premiums, the cash value of your policy may cover them for a time, but eventually, the policy could lapse.
What happens when you withdraw cash from life insurance?
Withdrawing cash from a whole life insurance policy gives you access to your policy’s cash value, but there may be tax implications, and it will probably reduce your death benefit.
How long does it take for a whole life insurance policy to build cash value?
Your whole life insurance policy builds cash value with your very first premium payment, but it may take several years before your policy accumulates a significant cash value. The longer your policy has to grow, the more cash value you’ll have access to when you need it.
How does owning a life insurance with a cash component affect your Social Security Benefits?
Under the current Social Security Administration rules, life insurance policies, owned by you or your spouse, that have a cash surrender value, are not considered countable resources if the combined face value of all the policies you own on any one individual does not exceed $1,500. However, if the total face value is more than $1,500, the cash surrender value is counted as a resource (i.e., assets or items of value an individual owns that are considered when determining eligibility for benefits) unless it is allocated for burial expenses.3

Note: You can accumulate cash value savings of up to $50,000 with a whole life policy from Mutual of Omaha
Is cash value life insurance the right choice for me?
A cash value life insurance policy is a good choice for people who want both life insurance coverage and an investment vehicle. The best way to decide exactly what type of cash value life insurance is right for you is to speak with a financial professional.

Contact a financial professional at Mutual of Omaha.
Sources
  1. South Carolina Department of Insurance, https://doi.sc.gov/1018/Understanding-Life-Insurance, March 2025.
  2. Insurance Information Institute, https://www.iii.org/article/reasons-to-purchase-permanent-life-insurance, March 2025.
  3. Social Security Administration, https://www.ssa.gov/OP_Home/handbook/handbook.21/handbook-2159.html, March 2025.
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