What does "cash value" refer to in permanent life insurance?

In permanent life insurance, "cash value" refers to the savings component that accumulates over time. This feature distinguishes permanent life insurance from term life insurance, which does not build any cash value. As policyholders make premium payments, a portion of those payments goes into a cash value account, which grows over time, often on a tax-deferred basis.

The cash value can be accessed by the policyholder through loans or withdrawals, offering a source of funds that can be used for various financial needs, such as paying premiums, funding education, or as a supplemental retirement income. Additionally, if the policy is surrendered, the policyholder can receive the accumulated cash value, which can be an important aspect of financial planning.

This accumulation aspect is what makes the cash value particularly significant, enhancing the policy’s long-term value beyond just the death benefit. Understanding the role of cash value is crucial for individuals considering permanent life insurance as part of their financial strategy.