Co-Founder, Coastal Financial Partners Group, California
Cash value in life insurance helps make lifetime protection affordable and premiums level. It represents an asset to the policy owner which may be used as a source of collateral or for policy loans should that become a necessity. At death, the policy will pay tax free proceeds to the beneficiary at an amount far in excess of the cash value. If the policy cash values are removed during lifetime, it will impact the future performance of the policy and such actions should be carefully managed and monitored to ensure there are no unintended consequences..
There are several variables that will determine what happens to the Cash Value (CV). First, as Jerry was saying, in the later years or life of the policy, the Cost of Insurance (COI) exceeds the premium you are currently paying (which hopefully has been level since you purchased it). When this happens, the premium would need to increase to keep up with the cost however when there is CV, this is used to pay the difference. Ideally, the crediting rate on the excess funds is enough to provide you with growth even while paying the additional premium.
When you take a withdrawal or loan, this effects the CV as well. With a loan, keeping this simple, the death proceeds will be reduced by how much the outstanding loan is. A withdrawal will generally drop the death benefit immediately. When there is enough crediting interest, even with loans and withdrawals, we have seen policies continue to grow. Jerry said it well, Life Insurance is an Asset for you to use.
Last, if you have your policy designed with an Increasing Benefit, usually called "option b", the CV will be included into the death benefit. This is one what to stay ahead of inflation especially when you are expected to live a long life.
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When you take a withdrawal or loan, this effects the CV as well. With a loan, keeping this simple, the death proceeds will be reduced by how much the outstanding loan is. A withdrawal will generally drop the death benefit immediately. When there is enough crediting interest, even with loans and withdrawals, we have seen policies continue to grow. Jerry said it well, Life Insurance is an Asset for you to use.
Last, if you have your policy designed with an Increasing Benefit, usually called "option b", the CV will be included into the death benefit. This is one what to stay ahead of inflation especially when you are expected to live a long life.