Back to top

What Is Cash Value Life Insurance?

Updated: October 2019

Cash value life insurance is a type of permanent life insurance that includes an investment feature. Cash value is the portion of your policy that earns interest and may be available for you to withdraw or borrow against in case of an emergency.1

The following types of permanent life insurance policies may include a cash value feature:

Term life insurance does not offer the cash value feature.


Get the protection you need and the peace of mind you deserve with Allstate insurance.

Get a quote Find an agent


Some permanent life insurance policies offer two features:

  • Death benefit, the amount that's paid out to beneficiaries when the insured person passes away. This is often referred to as the "face value" of your policy, or the amount of life insurance coverage you purchased (for example, a $500,000 whole life insurance policy).
  • Cash value, an additional feature that might make your policy more valuable, because you may be able to access the money while you're still alive.1
With a cash value life insurance policy, a portion of each premium you pay goes toward insuring your life, while the other portion goes toward building up a cash value. The cash value portion of your policy accrues tax-deferred interest. How the money earns interest depends on the type of permanent life insurance policy you purchase.


Depending on the type of life insurance policy you have, here are four ways you may be able to access its cash value:

  1. Make a withdrawal
  2. Take out a loan
  3. Surrender the policy
  4. Use cash value to help pay premiums
Withdrawing Money from your Cash Value Policy1
You may be able to make a tax-free withdrawal from your permanent life insurance policy. But, if your withdrawal exceeds the amount you've paid so far into the cash-value portion of your policy, it'll be taxed as income. Also, keep in mind that withdrawing your cash value funds reduces the death benefit that's paid out to your beneficiaries when you pass away.

Taking Out a Loan on Your Policy1
You can typically borrow up to the cash value on your policy. This may include the portion of your paid premiums that have been designated for the cash value account, along with any accrued interest those funds have earned. According to the American Institute of CPAs, the loan isn't considered taxable income. If you die before you repay the loan, however, the outstanding amount is subtracted from your death benefit. Regardless, until you pay the loan back, your debt is accruing interest, which can decrease your policy's potential death benefit.

Surrendering Your Life Insurance Policy for its Cash Value
A surrender is essentially a cancellation of your policy (you'll no longer be covered by life insurance). When you surrender your life insurance policy, your equity is the amount you've paid into the cash value portion of your account plus accrued interest. However, your insurer may subtract funds for any loans or unpaid premiums on the policy. And, you may be charged additional "surrender fees," which could further reduce your policy's surrender value, according to Investopedia. Finally, you could also be charged income tax on the money you receive from surrendering the policy.

Using Cash Value to Pay Premiums
If you're short on cash, you may be able to use the cash value in your policy to help pay your life insurance policy's premium. Check with your agent to see how this feature would work for your specific policy. Remember, though, if you deplete the funds in the cash value account entirely, it can cause your policy to lapse, which would end your life insurance coverage altogether.

Having emergency savings on a life insurance policy can be a source of comfort. But, since personal situations are unique, and the details of accessing cash value funds are complex, it's a good idea to talk with an insurance agent to help you decide what option might be best for you.

Quiz: Test Your Life Insurance Smarts

Question 1 of 5
You answered out of correct!
Start over

Still need help reading your policy? Ask an agent!

Or, brush up on more insurance lingo with our glossary.

Related Resources:

This content is for informational purposes only and may not be applicable to all situations.

Please note that Allstate or its agents and representatives cannot give legal or tax advice. The brief discussion of taxes on this page may not be complete or current. The laws and regulations are complex and subject to change. For complete details consult your attorney or tax adviser.

1Partial withdrawals and surrenders from life policies are generally taxed as ordinary income to the extent the withdrawal exceeds your investment in the contract, which is also called the "basis." In some situations, partial withdrawals during the first 15 policy years may result in taxable income prior to recovery of the investment in the contract. Loans are generally not taxable if taken from a life insurance policy that is not a modified endowment contract (MEC). However, when cash values are used to repay a loan, the transaction is treated like a withdrawal and taxed accordingly. Unpaid interest on loans is added to the loan principal, there by increasing the total debt on the policy. The combination of an increasing loan balance and deductions for contract charges and fees may cause the policy to lapse, triggering ordinary income tax on the outstanding loan balance to the extent it exceeds the cost basis in the policy. Loans, if not repaid, and withdrawals reduce the policy's death benefit and cash surrender value.

This life insurance information is provided for general consumer educational purposes and is not intended to provide legal, tax or investment advice. Allstate life insurance issued by Direct General Life Insurance Co., 911 Chestnut Street, Orangeburg SC 29115; Allstate Life Ins. Co. & Allstate Assurance Co., 3075 Sanders Rd, Northbrook IL 60062; American Heritage Life Ins. Co., 1776 American Heritage Life Dr., Jacksonville FL 32224. In New York, life insurance issued through Allstate Life Insurance Company of New York, Hauppauge NY. Life insurance also offered and issued by third party companies not affiliated with Allstate. Each company is solely responsible for the financial obligations accruing under the products it issues. Product guarantees are backed by the financial strength and claims-paying ability of the issuing company.

Securities offered by Personal Financial Representatives through Allstate Financial Services, LLC (LSA Securities in LA and PA). Registered Broker-Dealer. Member FINRA, SIPC. Main Office: 2920 South 84th Street, Lincoln, NE 68506. 877-525-5727. Check the background of this firm on FINRA's BrokerCheck website (
ECC Monitor: OK