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Cash Value Formula:
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Life insurance cash value represents the savings component of permanent life insurance policies that accumulates over time through premium payments and earns interest, providing a source of funds that policyholders can access through loans or withdrawals.
The calculator uses the future value of an ordinary annuity formula:
Where:
Explanation: This formula calculates the accumulated value of regular premium payments earning compound interest over time, representing the cash value growth in a permanent life insurance policy.
Details: Understanding cash value accumulation helps policyholders make informed decisions about premium payments, policy loans, withdrawals, and long-term financial planning with life insurance as an investment vehicle.
Tips: Enter annual premium in USD, interest rate as a decimal (e.g., 0.05 for 5%), and number of years. All values must be positive numbers within reasonable ranges.
Q1: What types of life insurance have cash value?
A: Permanent life insurance policies like whole life, universal life, and variable life typically have cash value components, unlike term life insurance.
Q2: How is cash value different from death benefit?
A: Cash value is the savings portion you can access while alive, while death benefit is the amount paid to beneficiaries upon your death.
Q3: Can I withdraw cash value without affecting the policy?
A: Withdrawals reduce both cash value and death benefit, while policy loans use cash value as collateral but maintain death benefit if repaid.
Q4: Are cash value gains taxable?
A: Cash value grows tax-deferred, and policy loans are generally tax-free. Withdrawals exceeding premiums paid may be taxable as ordinary income.
Q5: What factors affect cash value growth?
A: Premium amounts, interest rates, policy fees, dividends (if participating), and loan activity all impact cash value accumulation over time.