What is “cash value” in the context of permanent life insurance?

In the context of permanent life insurance, "cash value" refers specifically to the savings component within the policy that accumulates over time. Unlike term life insurance, which only provides a death benefit, permanent life insurance policies build cash value that policyholders can access during their lifetime.

This accumulation occurs as part of the premium payments made by the policyholder. A portion of each premium goes toward building the cash value, which grows at a certain interest rate specified by the insurance company, or based on the performance of the insurer’s investment portfolio, depending on the type of permanent policy (such as whole life or universal life).

The cash value can be borrowed against, withdrawn, or used to pay premiums, offering policyholders financial flexibility. This feature makes permanent life insurance appealing not just for its death benefit but also as a financial asset that can provide liquidity in times of need.

Understanding the cash value component is essential for appreciating the overall value and design of permanent life insurance policies, distinguishing it clearly from other elements like the death benefit, the total investment in the policy, or the total cost of premiums.