In the context of insurance, what does the term 'cash value' refer to?

The term 'cash value' primarily refers to the investment component of a permanent insurance policy. It represents the savings or investment portion that accumulates in addition to the death benefit. With permanent life insurance policies, a portion of the premiums paid is allocated toward building cash value, which grows over time on a tax-deferred basis.

This cash value can be accessed by the policyholder through loans or withdrawals, providing liquidity and financial benefits during the policyholder's lifetime. Permanent life insurance policies, such as whole life or universal life, are designed to accumulate cash value, distinguishing them from term life insurance, which does not have a cash value accumulation feature.

Understanding cash value is crucial for policyholders as it affects the overall value of the policy and can play a vital role in financial planning, offering a source of funds for emergencies, opportunities, or retirement.