What does the term "cash value" mean in the context of permanent life insurance?

In the context of permanent life insurance, "cash value" refers specifically to the savings component of a whole life insurance policy. Unlike term life insurance, which provides coverage only for a specified period and does not accumulate cash value, permanent life insurance policies, such as whole life, build cash value over time as part of their structure.

This cash value grows at a guaranteed rate and can be accessed by the policyholder during their lifetime through loans or withdrawals, providing a living benefit. Additionally, the cash value is distinct from the death benefit, which is the amount paid to beneficiaries upon the insured's death; it also differs from the premiums paid into the policy and any investment returns that may or may not apply depending on the type of permanent policy. Thus, recognizing cash value as the savings component helps clarify its role and benefits within a permanent life insurance policy.