What is cash value in life insurance?

Cash value in life insurance refers to the savings component of a permanent policy. This feature is unique to permanent life insurance plans, such as whole life or universal life, which allow for accumulation of cash that policyholders can access during their lifetime.

As premiums are paid, a portion of that amount contributes to building the cash value, which grows over time on a tax-deferred basis. Policyholders have the option to borrow against this cash value or withdraw funds for various needs, but such actions may reduce the death benefit and could have tax implications.

Understanding cash value is essential for those considering permanent life insurance, as it affects both the policy's long-term financial benefits and the flexibility it offers the insured.