What does "cash value" mean in a permanent life insurance policy?

In a permanent life insurance policy, "cash value" refers to the savings component that accumulates over time. This aspect of the policy allows the policyholder to build equity, which can grow on a tax-deferred basis. As the cash value increases, it offers the policyholder the ability to borrow against it, providing financial flexibility. These loans can be utilized for various purposes, such as funding education or covering emergencies, while the policy remains in force.

This contrast with other aspects of life insurance: the cost of the policy for the first year relates to the premium payment rather than cash value; a fee paid to the insurance agent is a separate transaction linked to distribution costs rather than cash accumulation; and the immediate payment upon the death of the insured refers to the death benefit, not the cash value component. Therefore, understanding cash value as a savings feature inherent to permanent life insurance highlights its unique benefit that distinguishes it from term life insurance, which does not have a cash value component.