How does "cash value" function in a whole life policy?

In a whole life insurance policy, the cash value acts as a savings component that accumulates over time, providing policyholders with a financial asset they can access while they are still alive. This cash value grows at a guaranteed rate set by the insurer and can be borrowed against or withdrawn if necessary.

As premium payments are made, part of that payment goes towards the policy's cash value, which gradually increases. This feature differentiates whole life insurance from term life insurance, which does not build any cash value. The cash value can also be used to pay premiums, providing a level of flexibility to the policyholder. Furthermore, if the policy is surrendered or matures, the policyholder may receive the accumulated cash value, making it an essential aspect of whole life insurance that benefits long-term financial planning.