What does cash value refer to in an insurance policy?

Cash value in an insurance policy refers to the amount returned to the policyholder if they decide to cancel or surrender their policy before it matures or before the insured event occurs. This feature is most commonly associated with permanent life insurance policies, such as whole life or universal life, where a portion of the premiums contributes to a savings component that builds cash value over time. This cash value can be borrowed against or withdrawn by the policyholder while the policy is still in force.

The amount returned upon policy cancellation can vary based on factors like the duration the policy has been held and any outstanding loans against the cash value. It's essential for policyholders to understand this aspect of their insurance policy, as it represents a tangible financial benefit accumulated over time.

The other choices pertain to different aspects of insurance policies: the sum insured upon death relates to the policy's death benefit, the face value is relevant to the policy's stated coverage at maturity or upon death, and the monthly premium cost is simply what the policyholder pays for coverage, not a value accumulated within the policy itself.