[Infographic] Life Insurance Cash Value Versus Death Benefit

Keystone Financial Group |

One of financial radio show host Dave Ramsey's big "beefs" with whole life insurance is that he claims you "lose" the cash value in your policy when you die. This is a misleading statement, but Ramsey is not alone in his misunderstanding of how cash value life insurance works! It can be a complex subject, and that's why we're sharing a quick infographic to help clear up some of the confusion on this topic.

In truth, the final death benefit amount on a whole life insurance contract is equal to the cash value of the policy PLUS the net insurance amount.

Especially if you have a policy with a Paid-Up Additions rider, the cash value can become quite significant over time. A life insurance policy's cash value is designed to increase each year until it actually equals the net insurance amount at maturity (for most policies, this is either Age 100 or Age 121), at which point, if you were still living, you would receive the entire amount. If you pass away before that time (which most people do), your beneficiaries will receive a death benefit which consists of the current cash value, plus whatever the purchased insurance amount is at that time. However, one of the great benefits of this type of policy is that you can access and utilize this cash value while you're still living.

Think of it like buying a house: As you pay your mortgage "premiums," you are not only paying down your mortgage, but you are also building equity. Just like buying a home, when you pay your life insurance premiums, you are building equity in your policy, as well as "buying down" the death benefit.

When you sell your house, do you receive BOTH the amount your house sells for AND your equity? Of course not, because your equity is already included in whatever you receive for the house. (Although fortunately, unlike your home, a whole life insurance policy won't lose value if the market takes a tumble!)

Is life insurance cash value part of the death benefit
Want to discuss your life insurance policy and learn how to maximize its lifetime benefits? Contact our office today for a free insurance review.


This document is for educational purposes only and should not be construed as legal or tax advice. One should consult a legal or tax professional regarding their own personal situation. Insurance policy applications are vetted through an underwriting process set forth by the issuing insurance company. Some applications may not be accepted based upon adverse underwriting results.  Death benefit payouts are based upon the claims paying ability of the issuing insurance company. Borrowing against the cash value will reduce the death benefit, and excessive borrowing could cause the policy to lapse entirely and lead to unintended tax consequences. One should always consult with a qualified insurance professional who understands your particular situation and goals before purchasing such a policy.