Cash Accumulation Method

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DEFINITION of 'Cash Accumulation Method'

A mathematical method of comparing the costs of different cash value life insurance policies. The cash accumulation method assumes that the death benefits for the policies are equal and unchanging. The aggregate total difference between the premiums paid into the two policies is then evaluated over time. Ultimately, this comparison is used to rank policies according to cost effectiveness.

INVESTOPEDIA EXPLAINS 'Cash Accumulation Method'

Under the cash accumulation method, the policy that has the most cash value at the end of the trial period is considered the superior policy. This comparison requires that the same rate of interest be paid into each policy during the comparison.

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