{"id":320761,"date":"2025-11-10T15:39:07","date_gmt":"2025-11-10T20:39:07","guid":{"rendered":"https:\/\/www.reviews.com\/?p=115325"},"modified":"2025-11-10T15:39:08","modified_gmt":"2025-11-10T20:39:08","slug":"use-your-cash-value","status":"publish","type":"post","link":"https:\/\/www.reviews.com\/insurance\/life\/use-your-cash-value\/","title":{"rendered":"4 Things You Can Do With Your Cash Value Life Insurance"},"content":{"rendered":"\n\n\n

If you have a permanent life insurance<\/a> policy, or you\u2019re considering one, you might be wondering about the \u201ccash value\u201d attached to it. As of 2025, two forces shape how useful cash value can be: borrowing costs and what your policy is currently crediting. Policy loan rates are generally in the high single digits right now (often 7%\u20139.5% APR, with many fixed whole life loans at 8% under common state-law caps), while higher interest rates have also pushed many insurers\u2019 dividend scales and indexed universal life (IUL) caps higher than a few years ago (New York Insurance Law \u00a74221<\/a>; Texas Insurance Code \u00a71105.054<\/a>; Federal Reserve H.15<\/a>; WSJ Prime Rate<\/a>). Below, we explain what it means to have cash value life insurance<\/a>, how access works under current rules, and how today\u2019s rate and inflation environment affect real-world decisions.<\/p>\n\n\n\n

What Is ‘Cash Value’ and What Can You Do With It?<\/h2>\n\n\n\n

\u201cCash value\u201d is the savings component of a permanent life insurance policy. A portion of each premium funds policy charges and a portion accumulates cash value, which grows by the policy\u2019s crediting method (dividends on participating whole life, declared interest on universal life, index-linked credits on IUL, or market returns in VUL). Growth is generally tax-deferred. For non-MEC policies, withdrawals are usually tax-free up to your cost basis, and loans are typically not taxable while the policy stays in force; MECs reverse the tax ordering and can add a 10% additional tax if you\u2019re under age 59\u00bd (26 U.S.C. \u00a772<\/a>; IRS Pub. 525<\/a>). Congress updated \u00a77702 interest assumptions in 2021, which can affect funding limits and MEC testing but did not change these distribution rules (CRS R44129<\/a>).<\/p>\n\n\n\n

Using the money in your cash value account usually works more like a loan than a true withdrawal. <\/p><\/blockquote>\n\n\n\n

Access isn\u2019t \u201cfree.\u201d Loans accrue interest and reduce available cash value and death benefit while outstanding; unpaid interest can compound. If a policy lapses or is surrendered with a loan, any gain becomes taxable in that year and is generally reported on Form 1099\u2011R (IRS Pub. 525<\/a>; 2025 Instructions for Forms 1099\u2011R and 5498<\/a>). If your policy is a MEC, distributions (including loans) are taxable to the extent of gain and may incur a 10% additional tax if you\u2019re under 59\u00bd (26 U.S.C. \u00a772<\/a>).<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

4 Ways You Can Actually Use Your Cash Value<\/h2>\n\n\n\n

Borrow from it<\/h3>\n\n\n\n

Once you\u2019ve built meaningful cash value, you can borrow against it quickly with no credit check or income underwriting. But loan provisions differ by policy type and carrier: many whole life contracts use a fixed loan rate (commonly 8% simple interest due to the statutory cap), while universal life and IUL often use adjustable rates tied to a benchmark such as Moody\u2019s Corporate Bond Yield Average (the \u201cPublished Monthly Average\u201d) or the Prime Rate. Participating whole life may also credit dividends differently on loaned values (direct vs. non\u2011direct recognition), which affects the net<\/em> borrowing cost even if the stated APR is the same (NY Ins. Law \u00a74221<\/a>; TX Ins. Code \u00a71105.054<\/a>).<\/p>\n\n\n\n

Today\u2019s typical policy loan rates: adjustable\/variable loans often land around 7%\u20139.5% APR, reflecting elevated corporate bond yields and Prime; fixed whole life loans commonly show 8% APR because many states cap fixed policy loan rates at 8% under NAIC\u2011modeled law. Where contracts reference the Published Monthly Average, the maximum adjustable rate is generally PMA + up to 3 percentage points; with Baa corporates in the mid\u20116% range recently, ceilings near the high\u20119% area are common, though carriers often price below the max. Some policies link loans to the WSJ Prime Rate, which has been in the high\u20118% area through much of 2024\u20132025 (Fed H.15 corporate yields<\/a>; WSJ Prime Rate<\/a>; NY \u00a74221<\/a>).<\/p>\n\n\n\n

Repayment is optional but risky to ignore. Any outstanding balance (plus accrued interest) reduces cash value and your policy\u2019s death benefit. If the policy lapses or is surrendered with a loan, any gain above your basis is taxable as ordinary income in that year; MEC loans are taxable earnings\u2011first and may face a 10% additional tax if you\u2019re under 59\u00bd (IRS Pub. 525<\/a>; 26 U.S.C. \u00a772<\/a>; 1099\u2011R Instructions<\/a>). Consider today\u2019s opportunity cost, too: higher rates have lifted many mutual insurers\u2019 dividend scales and supported higher IUL caps, so for some owners it may be more advantageous to leave cash value invested rather than borrow at 7%\u20139.5% APR. For example, one major mutual announced a record $7.3 billion dividend payout for 2025<\/a>, reflecting stronger portfolio yields\u2014use your policy\u2019s current crediting\/dividend to compare against the loan APR.<\/p>\n\n\n\n

Take a partial withdrawal<\/h3>\n\n\n\n

A partial withdrawal (partial surrender) removes cash directly from the policy rather than creating a loan. For non\u2011MEC life insurance, withdrawals are generally tax\u2011free up to your cost basis (premiums paid minus prior untaxed distributions), with amounts above basis taxed as ordinary income under the FIFO ordering rule in \u00a772(e). For MECs, distributions are taxed earnings\u2011first (LIFO), and includible amounts may face a 10% additional tax if you\u2019re under age 59\u00bd (26 U.S.C. \u00a772<\/a>; IRS Pub. 525<\/a>).<\/p>\n\n\n\n

Withdrawals typically reduce your death benefit. Many UL\/IUL contracts reduce the death benefit dollar\u2011for\u2011dollar on Option A (level) designs or adjust cash value and the corridor on Option B (increasing) designs; check your policy for specifics. Insurers issue Form 1099\u2011R for any taxable amounts from surrenders and withdrawals that exceed basis (1099\u2011R Instructions<\/a>).<\/p>\n\n\n\n

Factor inflation into this decision. Inflation erodes purchasing power over time: at 3% annual CPI, a $500,000 level death benefit has the real buying power of roughly $367,000 after 10 years (\u224826% erosion). If your policy does not have an increasing benefit and your cash value growth (net of charges) trails inflation, withdrawals may further constrain long\u2011term protection. Review current CPI data and your in\u2011force illustration to weigh the trade\u2011offs (BLS CPI<\/a>).<\/p>\n\n\n\n

Use it to pay premiums<\/h3>\n\n\n\n

If cash value is sufficient, many policies allow premiums to be covered via withdrawals, dividends (for participating whole life), or policy loans. This can preserve coverage during cash\u2011flow stress, but it changes the policy\u2019s trajectory: drawing on cash value or adding loans can lower future cash buildup and, if unmanaged, increase lapse risk\u2014especially when loan rates are in the 7%\u20139.5% range and may exceed your current crediting\/dividend rate (NY \u00a74221<\/a>; Fed H.15<\/a>).<\/p>\n\n\n\n

Most insurers require that a minimum cash value remain to keep the policy in force, and a lapse with loans outstanding can create taxable income on any gain (IRS Pub. 525<\/a>). For IUL, monitor caps, participation rates, and bonuses\/multipliers closely and insist on illustrations that comply with the latest IUL rules\u2014recent NAIC revisions (AG 49\u2011B) limit how non\u2011guaranteed elements can be illustrated, making conservative stress testing essential (NAIC AG 49\u2011B<\/a>).<\/p>\n\n\n\n

Ask your agent for an in\u2011force illustration with multiple scenarios (current scale, lower crediting\/dividends, higher charges and loan rates). Compare the illustrated return after policy charges to current inflation to gauge whether paying premiums from cash value preserves real purchasing power over time (NAIC consumer guidance<\/a>; BLS CPI<\/a>).<\/p>\n\n\n\n

Surrender your policy and withdraw the cash<\/h3>\n\n\n\n

You can surrender a permanent policy and take the net cash value as a lump sum, but there are material costs and trade\u2011offs. UL\/IUL\/VUL policies commonly include a declining surrender charge schedule that\u2019s highest in the early years and typically lasts 10\u201320 years depending on design; whole life generally does not use explicit surrender charges but may still have low early surrender values due to front\u2011loaded costs. Always verify your contract\u2019s schedule before surrendering (NAIC consumer guidance<\/a>).<\/p>\n\n\n\n

Early\u2011period values can be limited. In the first years of many policies, surrender charges and expense loads can result in a surrender value that is below total premiums paid. Review your annual statement and basic illustration to understand how much you would receive if you exit early (and how that changes over time). (Although, to be fair, cash value accounts generally don\u2019t start building substantial value until after the first 15 or 20 years<\/a>, anyway.)<\/p>\n\n\n\n

Taxes also matter. If you surrender, any amount you receive above your investment in the contract (roughly, total premiums paid minus prior untaxed distributions) is taxable as ordinary income, and any outstanding loan is treated as part of the amount realized. Insurers report taxable surrenders and lapses with loans on Form 1099\u2011R (IRS Pub. 525<\/a>; 1099\u2011R Instructions<\/a>).<\/p>\n\n\n\n

Most importantly, surrendering cancels your coverage. Consider alternatives like reducing the face amount, electing reduced paid\u2011up (for whole life), or taking a partial withdrawal or policy loan you can manage over time. Weigh real purchasing power, too: maintaining coverage that can grow (through dividends, declared rates, or index credits) may help offset inflation\u2019s long\u2011term effects, whereas surrendering removes that potential (NAIC consumer guidance<\/a>; BLS CPI<\/a>).<\/p>\n\n\n\n

What\u2019s Next?<\/h2>\n\n\n\n

Permanent life insurance is a multi\u2011decade commitment with moving parts that change as markets change. In today\u2019s environment, confirm three things annually: your exact loan type and current APR (many policies are 7%\u20139.5% APR, with fixed loans often 8%), your current crediting\/dividend scale and any IUL cap\/participation changes, and the projected lapse age under multiple scenarios. Also compare your expected net policy return to current inflation to judge real purchasing power (NY \u00a74221<\/a>; Fed H.15<\/a>; NAIC AG 49\u2011B<\/a>; BLS CPI<\/a>).<\/p>\n\n\n\n

Talk with an independent agent or financial planner about fixed vs. adjustable loan options, dividend recognition on whole life, current IUL caps, surrender charge timelines, and tax treatment (non\u2011MEC vs. MEC). For context, household life insurance reserves are near record levels and mutual insurers announced elevated 2025 dividends, while indexed life set a quarterly sales record in 2024\u2014signals that many consumers are still using cash\u2011value policies in the higher\u2011rate era (Federal Reserve Z.1 Table B.101.e<\/a>; Northwestern Mutual 2025 dividend<\/a>; Wink: IUL record<\/a>). If you\u2019re not quite ready to have that talk, start with our article on term life versus whole life insurance<\/a> to learn about the pros and cons of your two main options.<\/p>\n","protected":false},"excerpt":{"rendered":"

If you have a permanent life insurance policy, or you\u2019re considering one, you might be wondering about the \u201ccash value\u201d attached to it. As of 2025, two forces shape how useful cash value can be: borrowing costs and what your policy is currently crediting. Policy loan rates are generally in the high single digits right […]<\/p>\n","protected":false},"author":345,"featured_media":115564,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1270],"tags":[],"post_author":[],"yoast_head":"\n4 Things You Can Do With Your Cash Value Life Insurance - Reviews.com<\/title>\n<meta name=\"description\" content=\"Understanding 4 Things You Can Do With Your Cash Value Life Insurance\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.reviews.com\/insurance\/life\/use-your-cash-value\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"4 Things You Can Do With Your Cash Value Life Insurance - Reviews.com\" \/>\n<meta property=\"og:description\" content=\"Understanding 4 Things You Can Do With Your Cash Value Life Insurance\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.reviews.com\/insurance\/life\/use-your-cash-value\/\" \/>\n<meta property=\"og:site_name\" content=\"Reviews.com\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/Reviewscom\/\" \/>\n<meta property=\"article:published_time\" content=\"2025-11-10T20:39:07+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-11-10T20:39:08+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.reviews.com\/wp-content\/uploads\/2019\/03\/Featured-Image-4-Things-You-Can-Do-with-Your-Cash-Value-Life-Insurance-1024x683.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1024\" \/>\n\t<meta property=\"og:image:height\" content=\"683\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Reviews Staff\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@Reviews\" \/>\n<meta name=\"twitter:site\" content=\"@Reviews\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Reviews Staff\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"8 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.reviews.com\/insurance\/life\/use-your-cash-value\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/www.reviews.com\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"4 Things You Can Do With Your Cash Value Life Insurance\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.reviews.com\/#website\",\"url\":\"https:\/\/www.reviews.com\/\",\"name\":\"Reviews.com\",\"description\":\"Your Guide to the Best Services\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.reviews.com\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"4 Things You Can Do With Your Cash Value Life Insurance - 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