cash value
Also called: cash value
The value of funds in certain policies that can be withdrawn if the policy is terminated.
What it means
Cash value is the accumulation of funds within certain insurance policies that have a savings or investment component. This value grows over time from part of the premiums paid, after deducting policy costs. The policyholder can use it in certain ways, for example by applying for a policy loan or taking it when the policy ends, according to the terms. Not all insurance has a cash value; pure protection insurance generally does not.
Why it matters for families
Cash value is often misunderstood as savings that can be withdrawn at any time without risk. In fact, early withdrawal can reduce protection benefits or incur costs. Families need to know that the main purpose of insurance is protection, not investment, so cash value should not be used as a substitute for an emergency fund.
Example
For example, someone pays a premium of Rp1 million per month for a policy with a cash value component. After several years, a cash value forms, but the amount is not necessarily equal to the total premiums paid because there are acquisition and insurance costs. The exact figure can only be seen in the illustration and policy report.
Common misunderstanding
Many people think cash value equals the total premiums already paid. The correction: cash value has already been reduced by various costs, so it is usually smaller in the early years.