What is "cash value" in life insurance?

Cash value in life insurance refers to the amount of money a policyholder can borrow against or receive upon surrendering their life insurance policy. This value accumulates over time, particularly in permanent life insurance policies, such as whole life or universal life, where a portion of the premium payments goes toward building this cash value.

As the policyholder continues to pay premiums, the cash value grows, providing a financial resource that can be utilized in various ways. For instance, the policyholder can take out a loan against the cash value, which can be helpful in times of financial need. Alternatively, if the policyholder decides to surrender the policy, they can receive the accumulated cash value as a lump sum payment.

The other choices, while related to the broader scope of life insurance concepts, do not accurately define cash value. The total premium paid over the life of the policy does not take into account the growth component that is specific to cash value. The market value of the insurance company is irrelevant to an individual policyholder's cash value. Finally, funds set aside for future claims refer to reserve requirements for the insurance company, not the cash value available to an individual policyholder.