What is Accumulation Life Insurance


Permanent life insurance is also termed as cash-value insurance. It entails a death benefit plus the cash value accumulated. Unlike variable life, whole life, and universal life insurance policies that have built-in cash value, term life does not.


When you have accumulated a good cash amount, you can:

  • Take out a loan at lower interest than the banks
  • Supplement retirement income
  • Create some investment portfolio that maintains and accumulate your wealth
  • Pay your policy premium

How does cash value accumulate in your permanent life insurance policy? Terms vary for different policies and each individual life insurance company. Here how the process works:

Key points


  • In the permanent life insurance policy, cash is split up into three pools. One portion is for a death benefit, one for insurer’s costs and profits and one for the cash value.
  • Cash-value life insurance has a level premium. The cash doled out to cash decreases over time, while money paid to insurance increases as well as the higher cost of insurance as one age.
  • Whole life policies’ cash accounts grow based on the insurance company calculations. In universal life, cash grows in tune with current interest rates.
  • Variable life policies invest in mutual fund-like subaccounts. Growth and decline of cash are based on the performance of the subaccounts.

What is accumulated value?

Accumulated value is the total cost an investment holds, including the capital invested and the interest gain to the present date. In insurance, it refers to the total value of the whole (universal) life insurance policy. It is calculated as the sum of the initial investment, plus interest earned to date. The accumulated amount/ value is also known as cash value.

How accumulated value works?

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Accumulated value builds when the policyholder of a Whole or Universal life insurance policy starts paying the monthly premium. The insurer takes the premium amounts and divides them into two portions. One for the basic insurance policy costs, and the other is put in an internal account.

A policyholder can as well surrender the whole life insurance policy, then the insurer, and receive the cash surrender value of the policy. The cash surrender value may be less than the accumulated value of the policy has surrender charges. The policyholder can get a loan against the cash surrender value of the policy and choose to repay the loan in full or pay the loan and interest. If the loan is not repaid in full, the outstanding amount is deducted from the final death benefit.

The accumulated value is like a savings account since you can borrow against and keep the policy intact. If the policy is canceled, you received all the accumulated cash value minus penalties.

What is accumulation value on life insurance?

Accumulated value is the total cost an investment holds and includes capital invested and the interest earned to date. In insurance, it refers to the total acquired value of a whole(universal) life insurance.

What is cash accumulation life insurance?

Cash accumulation is a method used to compare different cash value life insurance policies. It assumes death benefits are equal and unchanging. The difference between the premiums paid into the two policies is then calculated over time.

Accumulated value vs Annuities

Equity Indexed Annuity Pros and Cons

Accumulated value of an annuity is the overall cost of the annuity. The difference in cash surrender value and accumulated value differs since the amount surrendered from the policy is eligible to a 10% surrender penalty. For instance, if the accumulated amount is $100,000, the cash surrender value is $90,000. If the policyholder wanted to roll over the annuity, the new account would get $90,000.

Accumulated value and taxes

Value accumulated in a whole life insurance policy is tax-deferred if the insurance contract is valid. Accumulated value is an integral component of a tax-saving strategy since it maximizes the amount of money you keep. When the accumulated funds are withdrawn during the policyholder’s retirement time, the policyholder qualifies for a lower income-tax bracket. For accumulated value is taxable immediately.


Your insurance company guarantees a minimum amount of value accumulation each year. The accumulated value may have the potential to exceed the minimum guaranteed by the insurance provider. For example, if the policy offers dividends, your accumulated value increases if the insurer’s accounts do well.

Term insurance policies are cheaper since they do not have an investment portion. Premiums go towards paying for insurance coverage and not accumulated value.


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How long does it take for whole life insurance to build cash value?

As long as you live, premiums are level. Your policy builds cash value. The initial annual cost will be higher than the same amount of term insurance. The policy lets you pay a premium for a specified period, say 20 years or until you are 65 years old, and insures you for life.

How is cash value of life insurance calculated?

The net surrender value of a permanent life insurance policy is the amount you will receive if you terminate the policy and forfeit the death benefit.

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