What feature of a life insurance policy does cash value represent?

The cash value in a life insurance policy represents the savings component that grows over time. This feature is primarily found in permanent life insurance policies, such as whole life or universal life insurance. As policyholders make premium payments, a portion of those premiums is allocated to the cash value, which accumulates on a tax-deferred basis. This means that the policyholder can access this cash value through loans or withdrawals, providing them with a financial resource during their lifetime.

This growth in cash value can be influenced by a variety of factors, including the type of policy and the performance of any underlying investments in universal policies. Over time, the cash value increases, offering a potential source of funds in the future, whether for emergencies, investments, or other personal needs. Understanding this aspect of life insurance is vital, as it distinguishes permanent life insurance from term insurance, which does not build cash value.