Cash Value

With regards to life insurance, the term cash value refers to the equity held by a whole life insurance policyholder in their life insurance policy.

When you use whole life insurance products – including those which pay out living benefits – part of the premiums you pay are used to cover the premiums for life insurance and part of the premiums build equity in your policy. Your equity in a policy is its cash value.

Your equity in your whole life insurance policy builds up over time until the data on which your policy matures. This may be when you reach retirement age in the case of policies with living benefits (such as retirement savings solutions), or at a higher age in the case of whole life insurance with a death benefit. Premiums are calculated so that at the time your policy matures, the cash value of your policy (its cash value) will match its face value (the death benefit in the case of standard whole life insurance).

Some insurers pay interest on the cash value of policies. In the case of investment-based whole life insurance policies, the cash value is invested (in investment fund shares, for example) and can potentially earn investment returns.

In Switzerland, the cash value of life insurance policies is classified as part of the legal estate of the policyholder, and can be left to beneficiaries using a will in keeping with Swiss inheritance rules.

Because the cash value of a whole life insurance policy belongs to the policyholder, it can be used as collateral to secure loans from insurance providers and third-party lenders. The moneyland.ch guide to life insurance policy loans has more information on this subject. It can also be used as collateral to secure mortgages. You can find more information on this in the moneyland.ch guide to indirect amortization.

Swiss tax laws make special provisions for the cash value of whole life insurance policies. Whether or not cash value is classified as taxable wealth depends on whether the policy is based on the vested benefits, pillar 3a or pillar 3b category of retirement savings.

Important: The cash value of a life insurance policy is not to be confused with its face value. The policy’s face value denotes the life insurance benefit which will be paid out to your beneficiaries when you die. The face value of a life insurance policy applies from the time that you take out the policy, and remains unchanged throughout the policy’s life.

More on this topic:
Term life insurance comparison
Life insurance: Useful tips
Term Life Insurance vs. Mixed Life Insurance