Whole life insurance policies offer this nifty little perk called “cash value.” A whole life insurance policy will accumulate a cash value over time, and the cash is tax-deferred, which means you will not have to pay taxes on the cash value your whole life insurance policy accumulates. Many people enjoy the cash value perk that whole life insurance policies offer; however, it must be noted that you cannot both reap the rewards of your cash value and have your beneficiary receive your death benefits.

This probably sounds a bit confusing, so let's break it down. Whole life insurance policy owners only get the cash value that their policy has accumulated in one of two ways. The first way the policy owner can obtain his cash value is by surrendering his whole life insurance policy early, in which case the cash value would be available to him while he is still alive. Once the policy owner surrenders his whole life insurance policy early, the policy owner no longer has that whole life insurance policy.

The second way a whole life insurance policy owner can obtain his cash value is by borrowing against the cash value. This is definitely a benefit in times of financial stress, but unless the policy holder pays back the amount borrowed, the death benefit is reduced. So, should the policy holder die before he pays back what was borrowed against the cash value, the amount of death benefits the beneficiary will receive won't be as much as it would be if there was no money borrowed against the cash value.

To sum up, a whole life insurance policy holder can not have all of his cash value and still have a death benefit for his beneficiary, nor can a policy holder borrow money against the cash value and still allow his beneficiary to get the full death benefits if the money borrowed is never paid back.