Cash Value: What Does It Mean?

Cash value is the savings component that builds up inside a permanent life insurance policy, growing over time as a portion of your premium payments. Unlike term life insurance, which offers no cash value, permanent policies like whole life and universal life set aside part of each payment to grow this account, often on a tax-deferred basis. You can typically borrow against your cash value, withdraw from it, or use it to help cover premiums later on, though unpaid loans and withdrawals can reduce your death benefit.

If you cancel or surrender the policy, you may be able to walk away with the accumulated cash value, minus any surrender charges. This growth adds complexity (and cost) compared to term coverage, which is why cash value is one of the biggest trade-offs people weigh when deciding between term and permanent life insurance.