What is cash value?

Many types of life insurance build equity called cash value.  The primary significance of this equity is that the owner of a cash value life insurance policy can surrender it and walk away with its cash value.  Furthermore, a policy's cash value can serve as the source of a loan for the policyholder, and in the case of universal life insurance, funds can actually be withdrawn directly from the cash value, with no requirement of repayment.

As a general rule, permanent life insurance policies have cash value and term life insurance policies do not.

The interest your cash value experiences depends on the type of permanent life insurance you have purchased.  With whole life insurance, your interest rate is fixed from the start of the policy's force.  With universal life insurance, a certain minimum rate of interest is guaranteed, but the actual rate of interest will probably be higher than that, and it is subject to change at any time.

Cash value grows not only through interest but through your premium payments.  In universal life insurance policies, your premiums go directly into your cash value.  In whole life insurance, a portion of your premium goes into your cash value.