Final answer:
The policyowner can stop making premium payments on a cash-value life insurance policy, as long as the cash value is sufficient to cover the cost of insurance. The policy then operates similarly to term insurance. Insurance provides financial protection and the cash value in life insurance can be used for various financial strategies, including premium payment.
Step-by-step explanation:
As long as there is enough cash value to cover the cost of insurance protection, the policyowner can stop making premium payments. The life insurance policy will then use the accumulated cash value to pay the premiums, and the coverage will resemble term insurance. Cash-value life insurance, such as whole life insurance, combines death benefit coverage with a savings component. This savings component builds cash value over time, which policyholders can use for various purposes, including covering premiums or taking out loans against the policy at the cost of interest.
Insurance serves as a method of protecting individuals from financial loss, where policyholders make regular payments to an insurance entity. In return, the insurance company provides compensation for covered financial damages. When people have insurance, such as health, car, house, or renter's insurance, and notably life insurance, there can be less incentive to prevent the covered event—an instance of moral hazard.
A life insurance policy's cash value can be an important resource for policyholders, providing flexibility in managing premium payments and ensuring ongoing coverage even if they choose to stop paying premiums out of pocket.