Definition
Cash Value
Cash value is the savings component that builds up inside a permanent or savings-linked life policy, accessible through loans or surrender.
In whole life and endowment policies, part of each premium accumulates as a cash value (reflected in the surrender value) that grows over time. The policyholder can borrow against it via a policy loan or access it by surrendering the policy, subject to surrender charges in early years.
In a ULIP, the equivalent is the fund value, the market value of allocated units. Cash value is what distinguishes savings-linked life cover from pure term insurance, which has no cash value. It is also why such policies double, however inefficiently, as a forced-savings vehicle.
Related terms
- Paid-Up ValuePaid-up value is the reduced sum assured a policy retains if the holder stops paying premiums after acquiring surrender value, instead of surrendering it.
- Policy LoanA policy loan is a loan taken against the surrender value of a traditional life insurance policy, using the policy as collateral.
- SurrenderSurrender is the voluntary termination of a life policy by the holder before maturity, in exchange for the surrender value.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.