In a permanent life insurance policy, what typically happens to premiums paid over time?

In a permanent life insurance policy, one of the defining features is the accumulation of cash value over time. This cash value grows on a tax-deferred basis and is one of the main advantages of permanent insurance compared to term insurance, which does not build any cash value. Premiums paid into a permanent policy not only provide death benefit protection but also contribute to this cash value component. As the policyholder continues to pay premiums, a portion of that money goes towards building the cash value, which can be accessed by the policyholder through various means, such as loans or withdrawals.

This structure supports long-term financial planning, allowing policyholders to utilize this cash value in their later years or in case of emergencies. The growth of the cash value is generally influenced by factors such as the type of permanent policy (whole life, universal life, etc.) and the specific terms of the contract, but the central idea is that the premiums contribute to a financial asset that can offer significant benefits over time.