Life Insurance Benefit Increases..then what?

Can somebody explain the relationship between “additional paid up life insurance” benefits and the increase in the cash surrender value.

When you die, does the beneficiary always get the original amount of the life insurance benefit plus the additional benefit thst might have been credited plus the CSV?

I’m not sure where you are (practices can differ from country to country) or what sort of policy you have. Perhaps you could give some more details?

However in general I’d say that you’re comparing two different things:

  • the sum insured (plus any bonus increases) is paid on the death of the life insured;
  • the surrender value is paid if the policyholder decides not to continue paying the premiums on the policy.

Normally the surrender value will gradually increase as more premiums are paid and more bonuses are granted. But you won’t ever get a payout of (sum insured + bonuses + surrender value). It’s an either/or option.

So doesn’t that suggest that it makes no sense to allow a big CSV to build up as one gets older.

For the last few years I’ve been using the CSV to pay the premium and am trying to get some confirmation that it makes sense to do that.

It sounds like the op is asking about dividend options. With a mutual insurance contract the profits of the insurance company are distributed back to the policy holders in the form of dividends.
Dividends can be used to pay premiums, paid in cash, sit earning intrest or buy paid up life insurance. ::: Pulling numbers out of my ass::: Let’s say the dividend was $100. Further let’s say that that buys a $1,000 of additional insurance. At death the benefit would be the face value of the policy plus the face value of the additional insurance. In this case the face value of the policy plus the $1,000 in paid up insurance.
The additional paid up life insurance has a cash value, but the cash value is not paid at death in addition to the face value. The cash value is what pays for the insurance, so you can have the insurance or the death benefit, but not both. You only see the cash surrender value if you surrender the policy.

It can make a lot of sense. Or it can go sideways on you.
Borrowing CSV to pay premiums will reduce the premium by the amount of the loan. If you borrow $1,000 to pay premiums your $1,000,000 policy is now a $999,000 policy. Not a big deal. But as the loans go on, it will be taking a bigger and bigger chuck.
Secondly, you will get a interest notice on the loan once a year. Pay the interest. If you don’t it will be added to the loan amount and start to compound. You cannot out run compound interest. If you allow it to compound sooner or later, your loan and interest will exceed the CSV increase for the year, and you will be forced to pay to keep the insurance in force.
Due to the plethora of life insurance products out there, this is a very general description, and just MHO. For specific advise I suggest you contact a a licensed agent from your insurance company who is familar with your individual contract.

I believe that my policy allows me to use CSV to pay the premium which directly reduces the CSV and no loan is involved. Therefor, the benefit will not be reduced by a loan.

Are you sure about that? Here, if you borrow against the surrender value in order to pay the premiums, then a loan is established. Interest is payable on the loan. The loan plus any accrued interest must be repaid when the policy terminates (either out of the surrender value if you surrender, or the sum insured if you die).

Better go back and read the policy, I think you are incorrect. But with the multitude of different types of policies out there you might be correct.