In the context of Ordinary Life insurance, what is cash value?

Cash value in Ordinary Life insurance refers to the savings component that accumulates over time within a permanent life insurance policy. This amount grows on a tax-deferred basis and can be accessed by the policyholder in several ways, including borrowing against it or making withdrawals.

When a policyholder takes out a loan using the cash value, they do not have to pay taxes on the borrowed amount, and it does not require repayment as long as the policy remains in force. If the policyholder withdraws cash value, it is important to note that it may reduce the death benefit and could have tax implications.

This dual function of insurance protection and savings is a key characteristic of ordinary life insurance, differentiating it from term insurance, which solely provides a death benefit without a cash value component. Other options do not accurately represent the definition of cash value in life insurance; for example, the total amount the beneficiary receives upon death refers to the death benefit, while the premium amount paid and any fees pertain to the policy's cost rather than its cash accumulation feature.