The Difference Between Life Insurance Death Benefits and Cash Value

If you are in the process of enrolling in a whole life insurance policy, you will probably become acquainted with two different terms: Death benefits and cash value options. These are both sources of money for the insured and their beneficiaries. However, they both work in different ways, and they cannot be combined. Therefore, many people don’t realize exactly how they are supposed to use each benefit, and if you don’t do so correctly, you might actually be denying yourself an incredible perk that your policy intends to offer you. 

Let’s take a closer look at the cash value and death benefit options within a whole life policy. 

Death Benefits 

Consider the death benefit to be the primary reason for getting life insurance. It is an amount of money that will be paid to a designated beneficiary when the person whose life is insured dies. Your reason for getting life insurance might be to cover your funeral expenses, pay for a child’s education or simply to leave a financial cushion for your family to use following the loss of your income. It is the death benefit that will provide that support. 

Under a whole life insurance plan, your death benefit will never expire, regardless of whether you die tomorrow or decades from now (as long as you continue to pay your premium). Therefore, you never have to worry about your policy expiring, no matter when you die. For this reason, whole life policies are often more stable to manage. 

Cash Value Options 

Secondary to death benefits, whole life policies also offer cash value investment opportunities. With a cash value option, a portion of the premium you pay will be invested by the insurance company on your behalf. As this money earns a return, it will accumulate within a cash value account.  

Unlike the money held in a death benefit, the insured party can actually withdraw money from a cash value account while they are still alive. Therefore, they will receive a source of income as they need it, and they will be able to watch the value mature over the years. While any withdrawals will be considered taxable income, the money will remain tax-deferred for as long as it remains in the cash value account. 

However, a cash value option will only be available for as long as the policyholder is alive. If the insured dies without cashing out the full amount of the cash value account, then the remaining funds will not be added to the death benefit. Therefore, the cash value account remains entirely separate from the death benefit. 

If you are considering investing in a whole life policy, then let your life insurance agent be your guide. They’ll be able to help you determine exactly how to structure your policy to maximize your benefits throughout y