i am still not quite clear what they are, someone kind enough to explain please?
This applies to Whole Life policies. The idea is that there is a total value that your policy is worth, and it is split between the “cash value” and the “insurance value.” When you first buy the policy, the split is 0%/100%. Say your policy is for $100,000. If you tried to cash in the policy immediately after signing up for it, you would get $0 but if you died immediately after signing up, the beneficiary would get $100,000. Look at the graph of Exhibit 6 from CFAI Reading 12. Perhaps after 10 years, you might be able to cash it in (or borrow on it) for $2,000, and the actual death benefit if you died would be for $98,000. Near the end of your life, the death benefit would continue to deline to nothing - there’s a point where it makes sense to stop paying for the “insurance” portion of the policy and just go ahead and cash out whatever it is worth in terms of cash value at the time.