Add To Cash Value Option

What Does Add To Cash Value Option Mean?

The “Add to Cash Value” option is a feature in universal life insurance where the policyholder adds the cash value to the face value of their policy. As a result, the death benefit paid to the beneficiary is higher than the usual fixed amount. However, the premium for this option is also higher.

Insuranceopedia Explains Add To Cash Value Option

The cash value of an insurance policy is the portion of the life insurance that the policyholder can utilize in various ways, such as investing it to earn interest over time or using it to pay premiums. Another option is adding it to the death benefit. This option is one of the features people weigh when they compare permanent life insurance against term coverage, since term policies don’t build cash value in the first place.

When the cash value is added to the death benefit, the beneficiary receives a larger amount. For example, if a policyholder has a $100,000 policy with a cash value of $25,000, and they do not use this option, the beneficiary will receive $100,000. However, if the policyholder chooses to add the cash value to the death benefit, the beneficiary will receive $125,000 upon the policyholder’s death. How much extra the beneficiary actually receives depends on how long the policy has been in force, because cash value builds slowly in the early years. The type of life insurance policy you choose also affects how quickly that value accumulates and becomes useful for this option.