What is cash value in a whole life insurance policy?

Cash value in a whole life insurance policy is a component that accumulates over time and acts as a savings element of the policy. With whole life insurance, a portion of each premium payment goes towards building this cash value, which grows at a guaranteed rate set by the insurer. This cash value can be accessed by the policyholder through loans or withdrawals, providing financial flexibility. Additionally, the cash value can play a role in the overall death benefit of the policy, as it may be added to the face amount upon the policyholder's passing.

This accumulation of cash value is unique to permanent life insurance policies like whole life, as opposed to term life insurance, which does not feature any cash value component. Understanding cash value is crucial for policyholders as it can improve liquidity, give access to funds for emergencies, and enhance the long-term financial benefits of the policy.