What is "cash value" in a whole life insurance policy?

In a whole life insurance policy, "cash value" refers to a savings component that accumulates over time as the policyholder pays premiums. This cash value builds at a guaranteed rate and can be accessed by the policyholder during their lifetime, either through loans against the policy or by surrendering it for its cash value. The growth of cash value is a key feature that distinguishes whole life insurance from term life insurance, which does not have a cash value component.

This accumulation of cash value is tax-deferred, meaning that the policyholder does not owe taxes on the growth until they withdraw it. Additionally, the cash value can provide a source of funds for the policyholder when needed, making the whole life policy not just a death benefit instrument, but also a form of savings.