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

The term "cash value" in a life insurance policy specifically refers to the portion of the policy that accumulates over time and is available for loans or withdrawals. This feature is typically found in permanent life insurance policies, such as whole life or universal life insurance, where part of the premiums goes towards building this cash value.

As policyholders pay their premiums over the years, a portion of those payments contributes to the cash value, which grows tax-deferred. This cash value can be accessed by the policyholder through loans or withdrawals, providing a financial resource during their lifetime. It is important to note that if a policyholder takes out a loan against the cash value, it will reduce the death benefit if not repaid.

In contrast, other options relate to different aspects of a life insurance policy. The total amount of premiums paid reflects the cumulative spending on the policy but does not illustrate the value that can be accessed. The death benefit is the amount that will be paid out to beneficiaries upon the insured's death, and the cost of the insurance refers to the premium payments made, rather than the cash accumulation within the policy. Thus, understanding "cash value" is key to grasping how permanent life insurance can serve not only as protection but also as