The cash value of an
insurance policy, also called the cash surrender
value or surrender value, is the amount available
to the policy holder in cash upon cancellation of the
policy. This term is normally used with a
whole life policy in which a portion of the
premiums go toward an investment. The cash value
is the value of this investment at any particular time. The
holder of the policy may also be able to use the cash value
of the policy as
collateral on a loan.
Such cash value credited to an individual account during the tenure of the policy keeps growing with every payment of premium. It also increments due to interest credited. For the insurance company, the accumulated cash value acts as a reserve and may be used to set off adverse claims and to cover bonuses in profit sharing (also called "participating") policies. Cash values also act as 'security' to insurance companies when they issue loans to insurers.