Cash Value Life Insurance Calculator

Did you know you can sell all or a portion of a life insurance policy, even term insurance?

(3-minute read)

Life insurance policies can become obsolete or burdensome. If you have an unnecessary life insurance policy or are feeling a pinch with making your payments, there are options to turn to in order to not lose the investment you have already made with years of payments. One of these options is to access the cash value of your life insurance and to cash out the policy. 

Let’s take a look at what cash value is, how it is calculated, and what other options exist for a life insurance policy that is no longer needed or wanted. 

What is cash value life insurance?

Cash value life insurance refers to a form of life insurance that functions a little bit like a savings account. Policyholders typically pay a fixed-level premium, which is split between the cost of the insurance and a cash value account. Because this cash value account earns some interest (and the taxes are deferred), the cash value will actually increase over time. Policyholders are able to access this cash value and can use it for a loan, cash, or to cover their policy premiums. 

How does the type of life insurance affect the cash value?

It is important to understand that some types of life insurance policies may or may not include a cash value feature. Pay attention to cash value life insurance vs term, since term life insurance does not have cash value. If you are looking for a type of life insurance that may have cash value, you should be looking for:

  • Whole life insurance
  • Universal life insurance
  • Variable universal life insurance
  • Indexed universal life insurance

How is the cash value of life insurance calculated?

Unfortunately, there isn’t a simple answer for how to calculate cash value of life insurance policy. This is due to the way that cash value is accumulated for different types of policies. Your life insurance company may have a cash value life insurance calculator to help you determine how much it is worth. 

For example, if you’re wondering, what is the cash value of a whole life insurance policy? The best way to find out is to consult your insurance company. This is because whole life insurance policies have guaranteed cash value accounts that will grow based on the insurance company’s formula. Most insurance companies will have a chart similar to this one

Policy Year       Age       Annual Premiums        Cash Value        Death Benefit      
5 40 $1,178 $3,738 $100,370
10 45 $1,178 $11,569 $101,513
20 55 $1,178 $33,838 $114,625
30 65 $1,178 $72,398 $144,881
35 70 $1,178  $99,839 $166,343
50 85 $1,178  $228,317 $271,184


Source: Investopedia

These charts will clearly show you how much cash value your whole life insurance has accrued. 

Variable and indexed universal life policies accumulate cash value differently. For variable policies, the cash is invested into sub accounts that work like a mutual fund—the cash value grows or shrinks based on how well those sub accounts do. For indexed policies, the cash is invested into a market index like the S&P, which pays interest according to that index without actually putting the cash value money into the market. 

Is there an alternative to cashing out a life insurance policy?

Many people consider cashing in their life insurance policy in order to access the cash value through a loan or to get a cash payment. While this can give you a modest sum of money, another option to consider is selling your life insurance via a life settlement, due to the fact that a life settlement can typically net four to eight times its cash surrender value. Due to the increased cash payout, life settlements are a wonderful option for dealing with an unwanted or burdensome life insurance policy.  

 Selling your life insurance policy via a life settlement allows you to treat your life insurance policy like a car, house, or any asset that you own and sell it to a life settlement company in exchange for cash. One major benefit of Life Settlements is that any type of policy is eligible—even term life insurance (the term policy must be convertible). The way Life Settlements works is that the investor gives you a cash payout, assumes the premiums, and then receives the death benefit. Life settlements can give you the cash you need to achieve your financial goals. 

To learn more about life settlements and see if you might qualify, visit our life settlement calculator. I am also happy to answer any and all questions about these life-transforming transactions.

Leo LaGrotte
Life Settlement Advisors

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