When you die, your beneficiary receives the death benefit, but not usually the cash account if you have a cash value life insurance policy.

Cash value life insurance includes whole life insurance, universal life insurance and other types of permanent life insurance policies. These policies are for life and they have a cash value component, which builds over the life of the policy. You’re able to tap into a policy’s cash value while you’re still alive. Beneficiaries generally don’t receive any of the cash value when you die. Instead, they get the death benefit.

As with so many insurance questions, though, there is an exception. If you purchased a rider on your policy that gives the beneficiary both the cash value and face value. In that case, the beneficiary would receive both. Review your policy to see what the coverage entails. Such a rider, of course, would have resulted in a higher premium, so you’d probably know if your policy includes this benefit.

Besides the lifelong coverage permanent insurance provides, cash value is a big selling point for whole life insurance policies. Meanwhile, term life insurance provides coverage only for a certain period, such as 10, 15 or 20 years, and doesn’t include cash value. However, term life insurance is usually more affordable coverage.

The cash value of a permanent life insurance policy, such as whole life insurance, builds slowly at first and gradually picks up speed after several years. Each year, the account grows with interest, tax-deferred.

What can use use the cash value in whole life insurance policy?

  • You can use cash value to pay premiums when the account reaches a certain level. This is called being “paid up” on the policy.
  • You can also borrow against the cash value. You still have to pay interest if you repay the loan to the insurance company, but the rates are competitive.
  • You can also withdraw money from the cash value. In that case, the life insurance company will deduct the amount, plus interest, from the policy’s death benefit.

It’s vital to understand the consequences before you make any withdrawals. Read your policy and talk to your life insurance agent about any questions you have.

For more, see cash value in life insurance: What is worth to you?

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