In life insurance, what does a 'cash value' refer to?

In life insurance, 'cash value' refers to the amount accumulated within a permanent life insurance policy that the policyholder can access during their lifetime. This amount grows over time, often on a tax-deferred basis, and represents the policy’s surrender value, which the insurance company pays to the policyholder if they decide to terminate the policy.

When a policyholder surrenders their policy, the cash value is the amount they receive after deducting any outstanding loans or withdrawals. This feature is unique to permanent life insurance policies, such as whole life or universal life, distinguishing them from term insurance that does not build any cash value. Understanding this concept is crucial for policyholders who may want to utilize the cash value for loans, withdrawals, or to cover premiums.