What Is Accumulated Value in Insurance?

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Another name for accumulted value is cash value.
Another name for accumulted value is cash value. (Image: finance image by Chad McDermott from Fotolia.com)

Most families, especially young families, find it hard to save because not much is left after covering immediate needs. The accumulated value in insurance serves as a forced savings because the accumulated value is effectively a savings plan attached to an immediate insurance need.

Accumultated Value

Accumulated value in insurance refers to the accumulated value in cash value life insurance. Cash value life insurance builds up cash value over time. Many refer to it as "equity" in the policy.

How It Works

The insured pays a monthly premium to the insurance company each month. From this premium, the insurance company has to deduct the cost of insurance, policy administrative expense and any other expenses stated in the insurance contract. What's left over each month is placed in a savings or investment account internal to the policy. That amount plus the compounded interest earned represents the accumulated value or cash value.

Benefits

Cash value life insurance has many benefits. The accumulated value serves as a "forced" savings account. The owner of the policy can borrow against the savings or accumulated value while keeping the policy in force. If, for whatever reason, the owner of the policy has to cancel the policy, he can "cash it in" for a cash value, although penalties often exist.

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