Which of the following statements is true about a whole life insurance policy?

A whole life insurance policy is characterized by its dual nature of providing both life insurance coverage and a savings component known as cash value. This cash value builds over time on a tax-deferred basis, increasing the policyholder's financial resources. As the policyholder continues to pay premiums, a portion of these payments contributes to the cash value, which can be accessed through loans or withdrawals during the policyholder’s lifetime. This accumulation of cash value is one of the defining features of whole life insurance, distinguishing it from term life insurance, which does not include any cash value.

The components of a whole life policy present significant advantages, such as the long-term growth potential of the cash value and the guaranteed death benefit, making it a vital tool in financial planning and estate management. Thus, recognizing the existence and significance of the cash value component is crucial in understanding the benefits offered by whole life insurance policies.