Does term life insurance have a cash value?

They say that value is simply what someone is willing to pay for something. So, in that sense, sure: We suppose term life insurance could have a cash value, provided you can find someone willing to pay for it.

But, does term life insurance have cash value? The actual answer in the real world is a bit more complicated. We’ll lay it out for you below.

Cash value life insurance

Before answering the big question, it helps to know what cash value actually is. So what is cash value life insurance? This type of life insurance coverage has a cash value component that grows over time. A policy owner can benefit from a cash value policy by drawing from the funds.

No, term life insurance does not have a cash value

So to answer the question: No, term life insurance doesn’t have a cash value component. You are, perhaps, thinking of permanent life insurance, which some literally refer to as cash value life insurance. (These policies also go by whole life insurance, variable life insurance, and universal life insurance. No wonder people get confused!)

While the death benefit of a permanent policy can protect your family financially if you were to die (by helping to replace your income, for example), the cash value of a permanent policy accumulates as premiums are paid. You are able to borrow or withdraw some of this growth and use it for any purpose – such as for paying premiums, college or supplementing retirement.

Keep in mind that: Loans and withdrawals can impact the total death benefit paid to your beneficiaries and the total cash value of the permanent insurance policy.

The idea of building up cash value in a life insurance policy can be an attractive feature to some because it means you have something tangible to show for your premiums. However, because they build cash value, permanent life insurance policies are much more expensive than term life insurance policies — sometimes as high as 6 to 10 times more expensive.

Because of the expense and complexity, people often consult with a financial professional before applying for a permanent insurance policy to determine if it’s right for them.

Why term life insurance doesn’t have a cash value

Term life insurance is what those in the know call “pure” insurance. That is, you pay premiums at a set rate for a set period of time (like 10, 20 or 30 years), and if you die while you’re covered by the term policy, the insurer will pay your beneficiaries a set amount.

If you outlive your term life insurance policy, well, you don’t get any money out of it. But you’re still alive, which seems like a win. It’s simple, cheap and effective — and provided you use tools like an online insurance calculator, you should have plenty of coverage for your loved ones in the event the worst should happen.

With the different types of life insurance policies, some prefer a term life policy as it provides flexibility in terms and is generally more affordable. And while no, you won’t be able to take out money once you’ve paid your term life insurance premiums, you’ll also be paying a fraction of the premiums you would with a permanent life insurance policy. And again, you’ll be providing outsized value to your loved ones in the event that you pass away while covered. You can’t put a price on peace of mind.