What Is Cash Value? Definition | Epic Life Glossary

Why it matters

Whole life, universal life, and indexed universal life build cash value. Term life does not. Early on, growth is slow because costs and commissions come first. You can borrow against it, but unpaid loans reduce the death benefit. Withdrawals and surrenders can have tax effects. Cash value is not the same as the death benefit, and growth in some policies is not guaranteed.

Source: investor.gov

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Related terms

Cash Surrender Value: Cash surrender value is the amount a carrier pays you if you cancel a permanent policy, which is the cash value minus any surrender charges and unpaid loans.
Policy Loan: A policy loan is money you borrow from the carrier using your policy's cash value as collateral. The policy stays in force if you keep paying interest and the loan stays below the cash value.
Whole Life Insurance: Whole life insurance is permanent coverage that lasts for the insured's entire life as long as premiums are paid. It combines a guaranteed death benefit with a cash value that grows at a rate set by the insurer.
Universal Life Insurance: Universal life insurance is a type of permanent coverage with flexible premiums and an adjustable death benefit. Part of each payment funds the cost of insurance, and the rest goes to a cash value account that earns interest.
Nonforfeiture Options: Nonforfeiture options are choices a permanent policy owner has if premiums stop. They let the owner keep some value, such as cash, reduced paid-up coverage, or extended term coverage.

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