Final answer:
A life insurance policy that offers both cash value and the face value as a death benefit is known as cash-value (whole) life insurance. This type of insurance accumulates cash that the policyholder can access and can serve as collateral for loans from the insurance company, which comes with various utilities in personal finance.
Step-by-step explanation:
A life insurance policy that provides a policy owner with cash value as well as the face value amount upon death is known as cash-value (whole) life insurance. In this type of policy, a portion of the premiums paid is allocated to a cash value account, which grows over time. This accumulated cash value serves as a financial account that the policyholder can draw from under specific conditions.
Life insurance companies have this system in place to offer financial protection to the insured's survivors. Another utility of this accumulated cash value is that the policyholder can use it as collateral to lend money from the insurance company. To borrow against the policy, the amount given to the company by the policyholder is considered, and the loan must be paid back with interest. This dual benefit of protection and savings makes cash-value life insurance a versatile financial tool.
People often maintain several types of insurance such as health insurance, car insurance, homeowners or renters insurance, and life insurance. These policies provide financial coverage in a variety of circumstances, including medical expenses, vehicle accidents, theft or damage to personal property, and the passing of the insured.
Overall, the concept of insurance is a method of protecting individuals from financial loss by paying regular premiums in exchange for the potential reimbursement for financial damages due to covered events. A cash-value life insurance policy, in particular, provides both death benefits and a monetary reserves feature, which can be a financial safety net for the insured or their beneficiaries.