Yes, permanent life insurance policies, such as whole life, universal life or variable universal life, covers you for your entire lifetime and features a cash value account. (Term life insurance covers you for a specified number of years and doesn’t feature a cash account.)
Cash value lets you tap into the policy while you’re still alive. Three ways you can use cash value include paying your life insurance premiums, taking out a loan against the policy and partially or fully withdrawing money from the policy.
When you’re paid up — which means you have enough cash value to cover your life insurance premium payments — you can terminate the policy and take the cash.
But first, make sure you no longer need this life insurance policy. After all, you probably invested a lot of money in premiums paid over the years. Cashing out means your beneficiaries won’t receive any of the benefits when you die.
Something else to know about cash value — typically the cash account grows slowly at first and then picks up speed, growing each year with interest, tax-deferred. Who long does it take to grow a life insurance policy’s cash value? The Society of Actuaries says it takes an average 12 to 15 years for the cash value to exceed premium payments on a whole life policy and 15 to 20 years on universal life insurance, depending on how much premium you’ve paid.
Rather than cashing in a whole life insurance policy or another permanent life policy, there’s another option. You could take out a loan against the life insurance policy’s cash value. One drawback is that you pay interest when you repay the loan, but the rate is generally lower than what you’d pay on a bank loan. Your death benefit is reduced if you don’t repay the loan. The amount of the reduction depends on the policy. With some whole life insurance polices, the death benefit is reduced by more than the amount of the loan.