What is Cash Value Life insurance?

Some life insurance policies have a cash value feature. This feature lets you contribute premium in addition to the amount you pay for your insurance coverage. The money can stay in the policy to increase the amount paid when you die – or you may use it during your lifetime for long-term financial goals, such as:

• health care needs
• retirement income
• college tuition for yourself, a child or grandchild
• a down payment on a home
• remodeling your current residence

Building cash value in a life insurance policy is attractive because:

• You can start, change or stop premium contributions at any time.
• If you purchase the policy through your employer, you can make contributions through the convenience of payroll deduction (aka “pay yourself first”) or send lump sum contributions to the insurance company at any time.
• Your after-tax contributions grow tax deferred at a competitive rate of interest — usually guaranteed at a minimum rate.
• You may access cash accumulated in the policy by withdrawal or loan for any reason.
• Generally, you are not taxed on any earnings on the money accumulated until you withdraw more than the premiums that have been contributed to the policy unless your policy is a Modified Endowment Contract (MEC).

» Learn more about MEC.

How does it work?
The premiums you choose to contribute to the cash value of your life insurance are usually paid along with your premium for the cost of the life insurance. In a Group Universal Life policy these contributions earn a fixed rate of return guaranteed not to fall below a certain percentage. In a Variable Group Life policy, contributions are invested in a fixed account or in investment subaccounts as you direct and earn a market return.

A living benefit
Use your cash value when you want
If you're saving for the long term, you can build cash in your life insurance policy to use during your lifetime. You are not taxed on any earnings until you withdraw more than you've contributed to the policy.

Keep in mind that withdrawals and loans will reduce your policy's total death benefit — a combination of your policy's face amount and any cash value. Plus, your policy may lapse if you miss a premium payment and you don't have sufficient cash value in the policy to cover it.

Here are a few other things to keep in mind:

• There is usually a minimum withdrawal amount.
• There is usually a minimum loan amount.
• There may be service fees associated with these transactions.

If you purchase a life insurance policy and intend to contribute money to your cash value account, it's a good idea to request a personal illustration. An illustration shows how cash value builds with additional amounts you contribute.

When enrolling online, Minnesota Life offers a tool to help you estimate cash value at various contribution levels and interest rates or investment returns.

» View the average annual total return

This is a general discussion of the relevant tax laws. It was not intended for nor can it be used by any taxpayer for the purpose of avoiding federal tax penalties. This information is provided to support the promotion or marketing of ideas that may benefit a taxpayer. Taxpayers should seek the advice of their own tax and legal advisors regarding any tax and legal issues applicable to the specific fact pattern.

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