Cash Value
What Does Cash Value Mean?
Cash value is the amount of money that an insurance policy is worth at a specific point in time, often referenced in relation to life insurance policies. Many life insurance policies include investment components that can contribute to an increase in their cash value over time. Not all life insurance builds cash value, though. Term policies do not have one, so this feature is specific to permanent life insurance policies like whole life and universal life.
Insuranceopedia Explains Cash Value
Sometimes, life insurance policies are canceled before the policyholder’s death and before the death benefit is paid. In these cases, the policyholder can receive the cash value of the policy. If the policy has been in effect for many years and the investments have performed well, it may accumulate a substantial amount of cash value. However, if the investments perform poorly, the cash value of a life insurance policy can be significantly reduced.
How quickly cash value grows depends on the type of policy. Whole life policies accumulate it on a fixed schedule set by the insurer, while indexed and variable universal life policies tie growth to market performance. For a closer look at how different policy types compare on this front, see which type of life insurance generates immediate cash value.
