Cash Value Life Insurance FAQs

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- About Us Whether you’re protecting your loved ones or growing your assets, you’re highly invested in your financial future. And so are we. When you purchase life and retirement insurance, you’re buying a promise. A promise that today, tomorrow or ten years from now, we’ll be there. For nearly 160 years, we’ve fulfilled that promise. Our clients trust Pacific Life to protect what matters most to them—their families, their businesses, their futures.

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CASH VALUE LIFE INSURANCE

Death benefit protection. Flexible premiums. Potential cash value build up and tax-free¹ access to the available policy's cash values while they're still living. Discover the potential of cash value life insurance.

Frequently Asked Questions

How does cash value life insurance work? Glad you asked. While cash value life insurance can be complex, the core concepts are easy to understand. Explore our frequently asked questions below.

How is cash value life insurance different from term life insurance?

Both types of life insurance provide death benefit coverage. While term life insurance offers protection that is designed to last for a specific period of time (usually 10, 20, or 30 years), cash value life insurance offers protection that may last a lifetime. As long as the policy has enough cash value, the policy won’t lapse. Additionally, cash value life insurance policies have the potential to accumulate cash value. Because of these features, cash value life insurance generally has higher premiums.

What is death benefit and why is it important?

The primary purpose of life insurance is to provide death benefit protection. But what is that? In short, when a life insurance policy’s insured person passes away, the policy’s death benefit amount is paid to the policy’s beneficiaries. This death benefit is generally paid income tax-free² and may represent a substantial financial sum to help protect your family, business, or estate from the financial impact of the insured’s death.

What is cash value? How does it build up?

Cash value life insurance is different from term life insurance because it offers death benefit protection as well as the ability to accumulate cash value that can be accessed while the insured is alive. A portion of each premium payment is applied to the policy’s cash value. The cash value grows with additional premium payments and any interest the insurance company credits the policy. The cash value decreases as monthly policy charges are deducted and by any policy withdrawals, loans, or other distributions the policyowner takes from the policy.

How can I access my policy’s cash value?

You may take withdrawals and policy loans from the available cash value of your policy. You can use the money to supplement your income in retirement or meet any other financial need you may have. Just remember that withdrawals and policy loans will reduce your policy’s available cash value and may reduce other policy benefits as well.

What are flexible premiums?

Many cash value life insurance policies offer flexible premiums, which means the policyowner may choose the timing and amount of premium payments subject to certain limits. However, if the policy’s accumulated cash value is not enough to pay ongoing monthly policy charges, the policy will enter a grace period, and if sufficient premium is not received by the end of the grace period, the policy will lapse. Upon lapse, the policyowner will lose life insurance coverage and any other benefits associated with the policy and a taxable event may occur if the policy has outstanding loan debt in excess of the policy’s cost basis (sum of premiums paid less any policy withdrawals).

What are the policy’s other benefits?

Certain Pacific Life cash value life insurance policies offer optional features, called riders, that allow the policyowner to access either the policy’s death benefit or other values in the event of chronic or terminal illness. This can be a significant advantage as many Americans are most likely to need care for chronic illness late into retirement, when other sources of income may be dwindling. Other riders provide guarantees to keep your policy in force regardless of cash value performance, as long as you pay at least a minimum premium on time. To learn more, talk to your life insurance producer and request a personalized illustration demonstrating the impact of various riders available with your policy.

How can I manage my Pacific Life policy?

For the most accurate depiction of your policy’s performance, refer to your policyowner statement. You may access statements, manage your policy’s allocations, request withdrawals, update beneficiaries, and sign up for eDelivery of critical policy documents easily online at https://life.myaccount.pacificlife.com.

Types of Cash Value Life Insurance

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¹ For federal income tax purposes, tax-free income assumes, among other things: (1) withdrawals do not exceed tax basis (generally, premiums paid less prior withdrawals); (2) policy remains in force until death (any outstanding policy debt at time of lapse or surrender that exceeds the tax basis will be subject to tax); (3) withdrawals taken during the first 15 policy years do not cause, occur at the time of, or during the two years prior to, any reduction in benefits; and (4) the policy does not become a modified endowment contract. See IRC §§ 72, 7702(f)(7)(B), 7702A. Any policy withdrawals, loans and loan interest will reduce policy values and may reduce benefits.

² For federal income tax purposes, life insurance death benefit proceeds paid in a lump sum generally pay income tax-free to beneficiaries pursuant to IRC Sec. 101(a)(1). In certain situations, however, life insurance death benefits may be partially or wholly taxable. Situations include, but are not limited to: the transfer of a life insurance policy for valuable consideration unless the transfer qualifies for an exception under IRC Sec. 101(a)(2) (i.e. the “transfer-for-value rule”); arrangements that lack an insurable interest based on state law; and an employer-owned policy unless the policy qualifies for an exception under IRC Sec. 101(j). When otherwise income tax-free death benefit proceeds are paid in a series of payments after death, a level percentage of each payment is taxable as interest income.

Riders will likely incur additional charges and are subject to availability, restrictions and limitations. When considering a rider, request a policy illustration from your life insurance producer to see the rider’s impact on your policy’s values.

Pacific Life reserves the right to change or modify any non-guaranteed or current elements. The right to modify these elements is not limited to a specific time or reason.

Life insurance is subject to underwriting and approval of the application and will incur monthly policy charges.

Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.

Pacific Life refers to Pacific Life Insurance Company and its affiliates, including Pacific Life & Annuity Company. Insurance products can be issued in all states, except New York, by Pacific Life Insurance Company or Pacific Life & Annuity Company. In New York, insurance products are only issued by Pacific Life & Annuity Company. Product/material availability and features may vary by state. Each insurance company is solely responsible for the financial obligations accruing under the products it issues.

Insurance products and their guarantees, including optional benefits and any crediting rates, are backed by the financial strength and claims-paying ability of the issuing insurance company. Look to the strength of the life insurance company with regard to such guarantees as these guarantees are not backed by the broker-dealer, insurance agency, or their affiliates from which products are purchased. Neither these entities nor their representatives make any representation or assurance regarding the claims-paying ability of the life insurance company.

The home office for Pacific Life & Annuity Company is located in Phoenix, Arizona. The home office for Pacific Life Insurance Company is located in Omaha, Nebraska.

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