How to Figure the Cash Value of Whole Life Insurance

A whole life policy has a level premium, a death benefit and builds cash value. As the policy ages, the amount of cash value grows each year. The benefits of the cash value are many. If you miss a payment after it builds, the insurance company often borrows against the cash value to make the premium payment. You also have the option of using that cash value to buy a smaller paid-up policy, term insurance or simply take the money and run. Some policies are participating. This means the policyholder participates in the profits and gets dividends. You can figure the cash value of whole life insurance if you have all the necessary information.

Difficulty: Moderate

Instructions

1. Find your age when you took out the whole life policy. If you aren't sure, you can find it on the deck sheet, the first page of the policy when you open it. It either gives the date you bought the policy or both the date and your insurance age. Depending on the company, your age might be one year older, since it's based on nearest birthday. Normally, these companies list the insurance age if they use that method.

2. Look for the chart showing nonforfeiture values. Normally, you'll find a table of contents on the second or third page. Find the page called "nonforfeiture values" and turn to that page. You'll see a chart with several items and many different boxes. Find the box that lists the age you were when you bought the policy.

3. Check for the column that says "cash value." There are three different columns. One is "reduced paid-up additions." Another is "extended term." The third column is "cash value."

4. Calculate the number of years you have had the policy. To do this, subtract the year you bought it from the present year. Find the column that says "number of years in force."

5. Follow the line for number of years in force over to the "cash value" column. You'll find a number there. Multiply that number times the number of thousands of face value you purchased. For instance, if you have had a policy in force for 16 years, follow the line over to the "cash value" column. If the column said 33.13 and you owned a $25,500 policy, you multiply the 33.13 times 25.5 since there are 25 ½ 1,000s. Your answer is 844.82, which is the policy cash value. The amount of cash value varies slightly midyear.

6. Add in the cash value of dividends. Some policies give dividends in addition to the cash value. The older the policy is, the higher the dividend grows each year. Sometimes the dividends accumulate as cash, and sometimes they buy miniature insurance policies called "paid-up additions." These policy additions also have cash value and pay dividends. If you have a policy with dividends that buy paid-up additions, you need to add their cash values to the main policy value.

7. Search for the last dividend statement. Normally, it comes on the policy anniversary. This tells you how much cash value your paid-up additions have accumulated. Simply add this number to the cash value of the whole life policy.