What does "cash value" refer to in a life insurance policy?

In a life insurance policy, "cash value" specifically refers to the savings component associated with permanent life insurance policies, such as whole life or universal life insurance. This cash value accumulates over time as the policyholder pays premiums, part of which contributes to this savings feature.

The cash value provides the policyholder with a financial resource they can access during their lifetime, typically in the form of loans or partial withdrawals. Additionally, it may grow on a tax-deferred basis, which means that the policyholder will not owe taxes on the growth until it is accessed. This aspect sets it apart from term life insurance, which does not build cash value at all.

Understanding this distinction is important, as it highlights how permanent policies serve a dual purpose: providing a death benefit while also acting as a financial asset for the policyholder. This accumulated cash value plays a crucial role in long-term financial planning.