How Does Cash Value In A Whole Life Insurance Policy Grow?

Cash value in a whole life insurance policy grows through a combination of factors, which include premium payments, interest, and dividends.

Here’s a breakdown of each factor contributing to the growth of cash value:

Premium payments: A portion of the premium payments you make for your whole life insurance policy goes towards the policy’s cash value. Premiums are typically higher than those for term life insurance policies, as they cover not only the cost of insurance but also contribute to the cash value accumulation. Over time, the portion of the premium allocated to the cash value increases, accelerating the growth of cash value in the policy.

Interest: Whole life insurance policies offer a guaranteed minimum interest rate on the cash value. This interest rate is determined by the insurance company and is typically based on the performance of the company’s investments and the current economic environment. The guaranteed interest rate ensures that your cash value grows over time, regardless of market conditions.

Dividends: If your whole life insurance policy is with a mutual life insurance company, you may be eligible to receive dividends. Dividends are paid out when the company has a surplus of earnings, usually as a result of favorable investment performance, lower-than-expected mortality rates, or efficient expense management. While dividends are not guaranteed, they can be a significant factor in the growth of your policy’s cash value. Policyholders have several options for using their dividends, such as:

Reinvesting the dividends to purchase additional paid-up insurance, which increases the death benefit and cash value of the policy.

Applying the dividends to reduce the premium payments, effectively lowering the policy’s out-of-pocket cost.

Leaving the dividends to accumulate within the policy, where they can earn interest and further increase the cash value.

The combination of premium payments, guaranteed interest, and potential dividends contributes to the steady growth of cash value in a whole life insurance policy, providing policyholders with a valuable financial asset that can be used for various financial goals and needs.


Information shared by Producers Wealth, Endless Legacy Solutions, or Karl Schnitzer is provided for general information purposes only and does not constitute accounting, legal, tax, or other professional advice. Viewers and subscribers should not act upon the content or information found here without first seeking appropriate advice from an accountant, financial planner, lawyer, or other professional.