Can you explain the meaning of cash value build-up?

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Asked October 14, 2013

1 Answer


Cash value build-up refers to the accumulation of cash value within a permanent life insurance policy over time. Permanent life insurance policies, such as whole life insurance and universal life insurance, are designed to provide lifetime coverage and also offer a savings or investment component known as the cash value. The cash value of a life insurance policy grows over time as premiums are paid into the policy, and a portion of each premium is allocated to the cash value account. This account earns interest or investment returns, depending on the type of policy, and grows tax-deferred over time. As the cash value builds up, policyholders can use it in a variety of ways. For example, they can borrow against the cash value of the policy or use it to pay premiums. Policyholders can also choose to surrender the policy and receive the cash value as a lump sum payment. The cash value build-up feature of permanent life insurance is an important benefit that can provide a source of savings, a source of emergency funds, or a source of retirement income. It also allows policyholders to have more flexibility and control over their life insurance coverage and can be used to supplement other retirement savings vehicles, such as IRAs or 401(k)s. It is important to note, however, that borrowing against the cash value of a policy reduces the death benefit payable to beneficiaries, and surrendering the policy before the end of its term can result in surrender charges and tax consequences. Additionally, the cash value growth rate and investment options offered by permanent life insurance policies vary and can be impacted by market conditions and the performance of the insurer's investment portfolio.

Answered October 14, 2013 by Anonymous

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