What is the purpose of cash value in permanent life insurance?

The purpose of cash value in permanent life insurance primarily lies in its ability to provide a policy loan option. When you pay premiums on a permanent life insurance policy, a portion of those payments goes into a cash value account, which accumulates over time. This cash value grows on a tax-deferred basis and can be accessed by the policyholder in the form of a loan.

This borrowed amount can be used for various purposes, such as funding education, covering emergency expenses, or even purchasing a new asset. The ability to take out a loan against the cash value provides financial flexibility and support for the policyholder without requiring the surrender of the policy. Additionally, as long as the loan is not paid back, it will reduce the death benefit that the beneficiaries would receive. This feature differentiates permanent life insurance from term insurance, which does not offer cash value accumulation and its accompanying benefits.