Unemployment has risen this year, and the government shutdown could exacerbate these rates. The social safety net is often inadequate in such circumstances, which leaves families to rely on their current wealth (PDF) to keep themselves afloat. Compounding these challenges to a family’s financial stability, the lack of a job restricts a person’s access to many sources of household credit. Combined, these dynamics put families under immense pressure.

Well-designed cash-value life insurance could help protect families in the event of job loss. The cash component of a life insurance product could help fill the gap caused by income loss or a family emergency. While most families do not have a cash value plan, among those that do, Black families are most likely to have a cash-value life insurance policy compared with other ethnic or racial groups. Given their historical financial vulnerability amid recessions, this tool could be a resource during future downturns. As the federal, state, and local policy environment rapidly evolves, the private sector can step in to improve access.

Cash-Value Life Insurance Provides a Savings Account That Can Be Used During Economic Instability

The typical life insurance policy provides a payout to designated beneficiaries when the holder of the policy dies, known as a “death benefit.” However, specific life insurance products, known as cash-value life insurance, include a feature that allows the policyholder to build a savings account that can be accessed by them in the future or can be passed down to beneficiaries.

The life insurance premium—or payment to the life insurance provider required of the policyholder to maintain services—on cash-value life insurance is typically higher than on life insurance products, like term life insurance, that don’t have this cash component. However, the savings in the cash-value life insurance is invested in safe securities, such as US Department of the Treasury securities, to increase the value of the cash component and help families build their net worth (PDF). Unlike many loan products, the holder of the cash-value policy does not need a credit or employment check to access this cash. That said, withdrawing from the cash component will reduce the policy’s death benefit.

Read the full article about cash-value life insurance by Michael Neal at Urban Institute.