Cash value (also referred to as cash surrender value) is the investment portion of a permanent life insurance policy. Whole life insurance (LINK) and universal life insurance (LINK) policies can both have cash value. You may have heard of someone cashing their life insurance policy in. This means that they had an investment value that had accumulate over years of paying for their life insurance. They may had run into financial issues or just needed money to go towards the down payment of a home they were looking to buy. As a result, they cancelled the life insurance policy and they received the cash value of the life insurance policy back. Beware- you may have to pay tax to the CRA if you cancel your life insurance policy with cash value so be sure to check with your life insurance company before doing so. The cash value of a permanent life insurance policy is an amount that has accumulated in basically what is a side investment account attached to the policy. Every time you pay a premium to the life insurance company the money is essentially divided into three separate categories. Cost of insurance. The insurance company takes the majority of the premium payment to cover the actual cost of the insurance. This is the amount that they charge you to provide you with the insurance coverage. Operating costs and expenses. The insurance company has costs to operate their company and a portion of the premium payment is used to help pay for these expenses. Cash value. The investment account value which accumulates within the life insurance policy over time. Performance is dependent on a number of factors (policy type, company, investments, etc.). The cash value is separate from the death benefit, so your beneficiaries do not receive the cash value and the death benefit at the time of death- only the death benefit is paid out. This is a common misconception with whole life insurance policies as many consumers believe that at death both the cash value and death benefit are paid out. Cash value predominately exists in whole life insurance (LINK) policies. It is the amount of money that accumulates over time and can be accessed in different ways. The main ways of accessing the cash value of a life insurance policy are, Withdrawal. You can request to withdrawal (or cash in) a portion of your cash value or entire amount. If you cash in a portion of your cash value, you will have a reduction in the death benefit. If you cash in the full amount of your cash value, the policy will no longer exist and will be cancelled. Loan from Insurance Company. You can request to take a loan against the cash value and be charged an interest rate which is determined by the insurance company. We typically see interest rates of between 6-8% charged. If the loan amount exceeds the total cash value amount, the policy will be cancelled/forfeited. Loan from Bank. If you have a large amount of cash value, the policy is considered an asset by banks. There are banks that will secure a line of credit against the cash value of the life insurance policy. You can then draw from the line of credit to access money tax free from your life insurance policy. This is a very popular financial strategy for many. Interest rates charged from a bank are typically much lower than what you would pay from the bank. The growth of cash value inside of a life insurance policy is tax deferred. This means that you do not pay any tax on the growth of the investment while it is growing. The tax is deferred until you withdrawal money from the cash value. Even though the tax is deferred, it will still take many years for this amount to grow to be significant. Life insurance with an investment component (cash value) is a long-term financial strategy. Every policy from every company is designed differently so we highly recommend speaking with one of our experience brokers to see what is right for you.