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

"Cash value" in whole life insurance refers to the savings component that grows over time and can be borrowed against. Whole life insurance policies are designed to provide coverage for the insured's entire lifetime, and one of the key features of these policies is the accumulation of cash value, which grows at a guaranteed rate.

This cash value serves several purposes; it can be accessed by the policyholder during their lifetime as a loan, or it can be withdrawn in some cases. The cash value provides a financial resource that policyholders can utilize for various needs, such as emergencies, retirement income, or funding a new investment.

The growth of the cash value is also important because it adds an investment aspect to the life insurance policy, making it not just a death benefit but also a potential source of savings. This differentiates it from term insurance, which does not have a cash value accumulation feature. Thus, understanding the cash value aspect is crucial for individuals considering whole life insurance as a long-term financial planning tool.