Life Insurance with Cash Value
If you’ve seen our other content, you’ll know we talk a lot about financial strategies that involve borrowing from the Cash Value of your life Insurance policy.
In today’s blog we’re going to explain what a cash value is, which types of Life Insurance have a cash value, and which ones don’t, as well as how you can access the cash value.
What is Cash Value?
The cash value of a life insurance policy is the value that the policy has accumulated since the policy issue date.
This accumulation is based on the premium payments you have made thus far.
The cash value within a permanent or whole life policy is often broken down into two parts: the guaranteed cash value and the dividend cash value.
The guaranteed cash value can be taken out as a policy surrender or as a policy loan.
The dividend value only exists in participating whole life policies and can be taken out as a withdrawal, policy surrender, or policy loan.
What Types of Policies offer a Cash Value
Most permanent life insurance policies build a cash value.
This is because the insured pays a higher premium in the early policy years, and this extra premium is held in the form of a guaranteed cash value, which the insured can access via a policy loan or surrender.
There are two main types of permanent life insurance policies: whole life insurance and universal life insurance.
Whole life insurance is often viewed as a simpler type of permanent insurance because its premiums are fixed and it often offers guaranteed benefits, which means that the policyholder knows exactly what they will receive.
Many whole life policies also produce a dividend, which generates a variety of options for the insured.
Whole life insurance is generally subdivided into non-participating and participating whole life policies.
Non-participating policies do not generate an annual dividend for its policyholders.
Participating policies, on the other hand, generate an annual dividend, which allows the insured to share in the profitability of the insurance company’s investments.
As you would expect Insurance Companies in Canada usually invest quite conservatively, and because of this historically over the last 100 years they have consistently paid dividends to their Participating policy holders.
Right now the dividend is somewhere between 5-6% depending on the company you work with
Universal life insurance is another popular form of a cash value life insurance policy.
It separates the investment portion from the life insurance portion, and some policies literally offer dozens of investment options.
The main difference from whole life insurance is that universal life insurance offers more flexibility – the policyholder can decide how much they want to contribute throughout the policy’s life, and they also have a wide variety of investment options.
What types of Policies don’t have a cash value component?
Term Life Insurance policies don’t generate cash value this is because you have them for a certain period, say 10, 20, or 30 years and they usually are designed to cover something specific
And therefore they are generally more affordable.
If you have a Term Policy this doesn’t mean your policy is bad, they just aren't built to generate a cash value.
How do you Access Cash Value?
The policy owner can usually access this value via the surrender of the policy, or a policy loan.
When you decide to “surrender” your insurance policy back to the insurance company it refers to terminating or returning the policy .
We should mention that certain policies have policy fees and surrender charges. This amount will be deducted from the cash you receive.
Also, you need to be aware of any potential taxable gains. If you have questions, be sure to ask your advisor who wrote your policy.
You can also access the cash value through a policy loan.
There are two broad ways you can do this, through the insurance company you set your policy up with, or through a bank.
The insurance company is actually contractually obligated to give you the loan if you ask for it. Plus it’s super easy, there’s no credit check, no questions about what you want to do with the money, and all it takes is a one page form to request.
With the bank they will run a credit check on you, and generally they loan you the money through a line-of-credit based on the cash value in your policy.
Since the asset, or the life insurance policy, your using for the loan is secure, you can usually get 80, 90, or even 100% Loan to value.
Contact Us
At Safe Pacific Financial, we specialize in helping Canadian business owners, incorporated professionals, and investors structure life insurance for maximum wealth protection, tax savings, and business growth.
If you would like to discuss whole life insurance or investments, we’re happy to chat and see if we can be a good fit to work with you. Fill out our contact form and we will get back to you within 24 hours on business days.
Related Insights
Use the Capital Dividend Account to Distribute Tax-Free Wealth
Eventually, every Canadian business owner asks the same question. How do I get this money out of my corporation without getting crushed by taxes? There...
Stop Under-Saving: How to Max Out Your FHSA
Everyone is talking about how expensive Canadian real estate has become. Almost no one is talking about how badly the average Canadian is underusing their...
The Estate Bond Strategy
How High-Income Canadians Pass Their Wealth On, Tax-Free Most Canadians assume the biggest threat to their wealth is the market. A bad year, a downturn,...
What Happens When You're Done Building?
There's a shift that happens in the lives of most business owners that almost nobody talks about. After years (sometimes decades) of focusing on growth,...
How to Borrow from Yourself Safely Using Life Insurance
High-income Canadians know the value of liquidity—but too often, accessing capital means triggering taxes, taking on debt, or selling investments at the wrong time. What...
Are You Ready for the Strategy You Want?
We've noticed a pattern in client meetings over the past few weeks that we want to talk about openly. Business owners are coming in excited...
RRSP vs. TFSA: Which Is Better for High Income Canadians
If you're a high-income Canadian, here's the truth: using RRSPs and TFSAs the wrong way could mean paying far more to the CRA than you...
The Million Dollar Baby Plan: Grow a Legacy for your Children
What if the birthday gift you gave your child today could turn into a million-dollar asset tomorrow? That's the idea behind the Million Dollar Baby...
Before You Sell Your Investments, Read This.
Markets are down, your portfolio took a hit, and you're wondering—should I sell now and cut my losses? Stop. Because selling during a market downturn...
Why Life Insurance Isn't Just for When You Die
If you think life insurance is something you'll never personally benefit from, you're missing the bigger picture. Permanent life insurance can provide liquidity, protect your...
Whole Life Insurance vs. Universal Life Insurance
Permanent life insurance can double as a powerful wealth-building tool—but not all policies are created equal. If you're an incorporated Canadian professional or business owner...
How Dollar‑Cost Averaging Is Helping Canadians Build Wealth
Between work, family, and everything else life throws at you—who has the bandwidth to watch the stock market every day? If you're a busy Canadian...
