Why the difference in Premiums paid vs Cash Value? (Whole Life)

3 Replies

I'm trying to find out information for my mother regarding a Whole Life Insurance policy she has.

She started this policy roughly 10 years ago (I had no idea this whole time) and is in her early 70's. As her English is not the greatest either, the possibility that she may have been taken advantage of sits in the back of my mind.

I took a look at her account today and saw that she's been paying her premiums monthly, for the past 10 years.

But the Cash Value amount of the Whole Life Insurance policy does not match the Premiums she has been paying. The Cash Value amount is roughly $2,000 less than the total Premium amounts she has paid (i.e.: Cash Value of $27,000 and Total monthly premiums paid for 10 years = $25,000).

Where is this gap coming from? Just a note, I'm not too familiar with Life Insurance as well so I'm trying to help my mother out.

Also is it the policy of Insurance companies to mail out the Notice of Anniversary date on the exact Anniversary date? She wanted to change her policy but was told that she had to have done it before the anniversary date or wait until the next anniversary date. Well, she couldn't exactly do that as she didn't receive the letter until 5 days after her policy anniversary date.

Thanks in advance.

@Jason Rose ,

I am actually working on insurance planning right now. 

The cash value is not going to match premiums  because premiums get adjusted for the mortality and overhead expenses. The remaining is the cash value. 

The cash value is also invested so it will compound over the years as well. 

There are various type of whole life and how the funds are invested are also different. 

About the anniversary, you gotta talk to the insurance provider. 

Originally posted by @Jason Rose :

I'm trying to find out information for my mother regarding a Whole Life Insurance policy she has.

She started this policy roughly 10 years ago (I had no idea this whole time) and is in her early 70's. As her English is not the greatest either, the possibility that she may have been taken advantage of sits in the back of my mind.

I took a look at her account today and saw that she's been paying her premiums monthly, for the past 10 years.

But the Cash Value amount of the Whole Life Insurance policy does not match the Premiums she has been paying. The Cash Value amount is roughly $2,000 less than the total Premium amounts she has paid (i.e.: Cash Value of $27,000 and Total monthly premiums paid for 10 years = $25,000).

Where is this gap coming from? Just a note, I'm not too familiar with Life Insurance as well so I'm trying to help my mother out.

Also is it the policy of Insurance companies to mail out the Notice of Anniversary date on the exact Anniversary date? She wanted to change her policy but was told that she had to have done it before the anniversary date or wait until the next anniversary date. Well, she couldn't exactly do that as she didn't receive the letter until 5 days after her policy anniversary date.

Thanks in advance.

 Think about what is going on from the insurance company's point of view. A permanent insurance policy WILL pay a death benefit some day. The cash value of the policy is really nothing more than the insured saving up their own death benefit over their expected lifetime. They'll be investing that money at the same time, so they make a worst case assumption on what they think they can make in the debt markets. That is what is known as the "guaranteed" rate. Its just their worst-case scenario. They don't actually plan to pay that. The faster the cash value grows, the faster their risk is eliminated.

They also have the risk that the insured could die early. For this the simply tack on the price of a one-year renewable term policy. This covers the gap between the cash value and the face value of the policy. The more cash value, the less gap that needs coverage.

During the first 10 years, there are some additional charges. This is where the insurance company makes its money.

When the insured dies, the death benefit is paid from the cash value and from the term.

You can see these explicitly itemized in a Universal Life policy, but not in a whole life. But rest assured, that is what is going on under the hood.