What does "cash value" refer to in a whole life insurance policy?

In a whole life insurance policy, "cash value" refers specifically to the savings component of the policy that accumulates over time. This portion of the policy allows policyholders to borrow against it or to cash it out if needed. Whole life insurance combines life coverage with a savings component, and as premiums are paid, a part of those premiums contributes to the accumulated cash value.

This cash value grows at a guaranteed rate, and policyholders can access it in various ways, such as taking out a loan against the policy or withdrawing funds directly. Unlike a term life policy, where no cash value accumulation occurs, whole life insurance provides this added financial flexibility through its cash value feature.

Other options do not accurately describe cash value: the total death benefit encompasses the policy's face value paid out upon death, the annual premium is the cost of maintaining the policy, and the surrender value reflects the amount a policyholder would receive if they canceled the policy, which may differ from the cash value due to potential penalties or outstanding loans.