Cash Surrender Value Life Insurance

The cash surrender value of a life insurance policy is the value of cashing out your insurance policy early before an insurable event occurs. The cash surrender value of a policy and the cash value of that same policy might be two different figures. Many insurance companies charge fees for terminating or cashing out a life insurance policy too early. Read more to learn everything you need to know about cash surrender value and whole life insurance.

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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in...

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Benjamin Carr was a licensed insurance agent in Georgia and has two years' experience in life, health, property and casualty coverage. He has worked with State Farm and other risk management firms. He is also a strategic writer and editor with a background in branding, marketing, and quality assurance. He has been in military newsrooms — literally on the frontline of journalism.

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Reviewed by Benji Carr
Former Licensed Life Insurance Agent

UPDATED: Feb 11, 2021

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Quick Facts

  • The cash surrender value of a life insurance policy represents the amount of money the life insurance company pays to the insured if they choose to terminate their coverage or an insurable event occurs.
  • The cash value of your life insurance policy is the savings component of your whole life policy.
  • In most life insurance policies with a cash value, this cash is available for the insured to borrow against, however, this will reduce the benefits paid out in the event of an insurable event (i.e. death).

Life insurance terms can be confusing to the layperson, but they don’t have to be. If you have a life insurance policy with a cash value, you may have heard the term cash surrender value. You’re probably wondering what this is.

Is the cash surrender value the same as the cash value? We’ll answer this question, and dive deeper into the cash value and the cash surrender value of whole life insurance policies. We hope to simplify life insurance so that you can take control of your life insurance policy and stay informed.

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What is cash surrender value in life insurance policies?

The cash surrender value of a life insurance policy is the amount of money that the life insurance company will pay a policyholder in the event that they voluntarily decide to terminate their life insurance coverage.

This amount is also equal to the amount of money the insurance company would pay in an insurable event. In the case of life insurance, this insurable event is typically death.

This cash value is comprised of the savings portion of whole life insurance policies. The total cash value of your policy may be referred to by a number of different terms including, “cash value,” “surrender value,” “policyholder’s equity,” and of course, “cash surrender value.”

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What types of life insurance policies have a cash value?

Cash value is a feature of permanent or whole life insurance policies. These policies, unlike term life insurance policies, do not expire after a certain amount of time. Whole life insurance policies last for the duration of a person’s life, or until they decide to terminate their policy.

Term Life vs Whole Life Insurance
Term Life InsuranceWhole Life Insurance
Set number of yearsFor life
Cheaper ratesMore expensive rates
No savings vehicleSavings vehicle/ cash value
Can add ridersCan add riders
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Since whole life insurance policies accumulate a cash value over time and last for a lifetime, they are more expensive to purchase than term life insurance policies. Other types of permanent, whole life insurance that accumulate a cash value are universal and universal index life insurance.

The specific rules and requirements for the various types of permanent life insurance policies offered by life insurance providers will vary from company to company so it is important to understand the ins and outs of your policy and the specifics about cash surrender value.

What should I keep in mind regarding cash surrender value?

The cash surrender value of life insurance will depend on a few different factors, but most importantly you need to understand your life insurance provider’s policies regarding cash value and policy termination.

For example, some life insurance providers will charge you a termination fee. This will reduce the amount of money you receive. The cash value of your policy and the cash surrender value of your life insurance policy might not be the same.

Other instances where this value discrepancy may occur are when you try to cancel a whole life insurance policy before it has time to mature.

In these instances, the cash value will likely be higher than the cash surrender value. Furthermore, it is common for insurers to charge more in fees when policies are terminated in their early stages.

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Can I borrow against my life insurance policy’s cash value?

Yes, you can borrow against the cash value of your life insurance policy. Furthermore, all loans that are taken out against your life insurance’s cash value are tax-free. However, all unpaid loans will be deducted from your benefits in the event of your death.

Additionally, all outstanding loans against your life insurance’s cash value become taxable when you terminate or cancel your life insurance policy.

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Is the cash value of my life insurance policy guaranteed?

In some cases, but not in all. For example, in most whole life insurance policies the cash value of the policy is guaranteed. However, in universal life insurance policies, the cash value may not be fully guaranteed.

Some life insurance policies use market indexes to determine interest and some insurance companies even pay their members dividends. All of these factors can affect the cash value of your life insurance policy.

It is important to note that life insurance policies that use market indexes are not actually tied to the market. If the market dips, you won’t lose value, but the value of these policies can not be guaranteed.

The Insurance Information Institute has great material for additional reading on the subject of cash surrender value.

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Is the cash value of my life insurance policy taxable?

The great thing about whole life insurance policies with cash values is that they are a great way to grow wealth tax-free. While your money is accumulating and earning interest it is exempt from taxation.

However, should you decide to terminate your policy and receive the cash surrender value of your policy any additional money (basically any money more than you spent on your premiums) will be taxed as income earnings.

Speak with a tax professional and your insurance representative to get a complete understanding of your tax exemptions and responsibilities.

Cash Surrender Value: The Bottom Line

The cash surrender value of your life insurance policy is what your policy is worth should you decide to terminate your policy or should an insurable event occur.

In some cases, your cash value and your cash surrender value may be two different totals. Pay attention to these discrepancies and the fees and charges associated with terminating your insurance.

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