Key facts about whole life cash values
Whole life insurance cash values increase over time through a combination of guaranteed interest and dividend credits, they can be borrowed against while the policy remains in force, and withdrawals up to the cost basis are generally tax‑free.
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Growth mechanism
The cash value is credited with a minimum guaranteed interest rate set by the insurer, and many policies also receive non‑guaranteed dividends that can be added to the balance, accelerating growth.
Accessing the cash value
Policyholders may take a loan against the cash value without triggering a taxable event, but the loan reduces the death benefit until repaid; unpaid loans can cause the policy to lapse.
Tax considerations
Withdrawals that exceed the total premiums paid (the cost basis) are taxed as ordinary income, while withdrawals up to that basis are not taxable.
Comparative overview
| Statement | True? | Explanation |
|---|---|---|
| Cash value grows only by guaranteed interest | No | Dividends can also increase the balance. |
| Loans against cash value are tax‑free | Yes | Loans are not considered income, but they reduce the death benefit. |
| Withdrawals up to premiums paid are tax‑free | Yes | Only the portion above the cost basis is taxable. |