What is cash value?
Some life insurance products have cash value. Find out what it is and how you can use it.
Why are mortgages so expensive in Canada?
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Cash value is a feature of certain types of life insurance products in Canada, including whole life, variable life and universal life. The cash value is the worth of the policy, accumulating over time as you pay premiums. If you cancel the policy, your insurance company pays you the cash surrender value—the cash value minus any loans, overdue premiums and fees.
You can usually withdraw or borrow all or some of your policy’s cash value, but know that doing so will reduce your insurance benefits under the policy. Borrowing from cash value is commonly referred to as taking out a “policy loan.”
There is no application process and no fees, and the interest rate on the loan is often variable. However, if the amount of your policy loan is greater than your policy’s adjusted cost base (ACB), the funds may be taxable and treated as a deemed disposition. Alternatively, a financial institution or other third-party lender may be willing to lend to you using the cash value of your policy as collateral, avoiding the deemed disposition and potential tax consequences.
Example: “After Amelia borrowed cash value from her life insurance policy, she was surprised to receive a T5 Statement of Investment Income from her insurance company, requiring her to report investment income on her income tax return.”
Read more about life insurance:
- The best life insurance in Canada: your complete guide
What is life insurance? Do you need it and, if so, what kind? How much will it cost? Find out with our guide to the best life insurance in Canada. - Do I really need life insurance?
Purchasing a life insurance policy is considered good planning and, for some, the pinnacle of “adulting.” Here’s how to know if you actually need it. - What is universal life insurance?
Despite its complexities and cost, universal life insurance offers greater flexibility and some tax advantages. Here’s how it works. - What is whole life insurance?
Here’s everything you need to know before deciding if a whole life insurance policy is the right policy for you.
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