Cash Value vs. Surrender Value: Which Is Better for You
Cash value vs. surrender value compares what your accumulated life insurance savings look like. Cash value is the sum of the investment return on the premiums you paid, but surrender value is money you get back when you cancel a policy.
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Rachael Brennan
Licensed Insurance Agent
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...
Licensed Insurance Agent
UPDATED: Jul 7, 2023
It’s all about you. We want to help you make the right life insurance coverage choices.
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Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different life insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.
UPDATED: Jul 7, 2023
It’s all about you. We want to help you make the right life insurance coverage choices.
Advertiser Disclosure: We strive to help you make confident life insurance decisions. Comparison shopping should be easy. We are not affiliated with any one life insurance company and cannot guarantee quotes from any single company.
Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different life insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
- Cash surrender value is the sum of money you receive from your life insurance company after you cancel the policy
- Cash value is the sum of money you accumulate on a policy by investing a portion of your monthly premiums
- You can borrow against the cash value of your permanent life insurance policy, but any loans you haven’t paid back are deducted from your death benefits
Some professionals will make cash value vs. surrender value sound like a difficult concept, but our article breaks it into an easy-to-read guide.
Cash value and surrender value are common among annuities and permanent life insurance policies. We’ll focus on the difference between these two life insurance terms and how both values affect your life insurance policy.
The Difference Between Cash Value vs. Surrender Value
If you have permanent life insurance, you’ll come to know the difference between cash value vs. cash surrender value. Although these terms sound the same, these two permanent life insurance factors are quite different:
- Cash value is the life insurance savings account associated with most whole life policies
- Surrender value is the value of the policy minus the insurance company’s cancellation fees
Cash value life insurance builds a savings account by investing a portion of your monthly premium. As you pay your monthly rates, a portion of your monthly payments goes toward the cash-value account, while the other part applies to your policy. Some accounts allow you to make investments, such as bond portfolios and other types of investments.
While cash value refers to the life insurance savings account associated with permanent policies, the surrender value is the amount of the policy itself minus cancellation fees. If you decide to cancel your whole life insurance, you won’t receive a refund for the whole value — you receive the policy’s surrender value.
According to the Internal Revenue Service (IRS), any money you receive from the surrender value of life insurance is taxable income.
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How Cash Value Works in Life Insurance
Cash value is the sum of money you’ve built up while paying for life coverage. You cannot cash out term life insurance — only permanent policies have an investment component.
Suppose you buy a permanent life insurance policy, such as a whole life insurance policy, and you have a death benefit of $250,000. If you make $1,000 annual premium payments for 15 years, you will have a $15,000 cash value.
You can withdraw from the accumulated premiums‘ value, but your provider may charge a fee when you want to access funds. Each company that provides a permanent policy has a different percentage, so shop around until you can find a surrender charge that works for you.
Early withdrawals come with a penalty. However, penalties won’t affect your credit, and you aren’t required to pay back loans against life insurance. Loans are subtracted from the policy’s death benefit amount, so borrow wisely
An Example of Surrender Value in Life Insurance
If you decide to surrender your life insurance policy, research the surrender fee your insurance company charges. For example, if you see that a 30 percent surrender fee will affect your cash value when cancel the policy, then the surrender charge will deduct $4,500 from your $15,000 cash value. Therefore, your surrender value is $10,500.
If you have term life insurance, there is no surrender value, and you will not receive any refund for canceling a policy. Read more about how to cancel life insurance.
Cash Value vs. Surrender Value: Permanent and Term Life Insurance
Only whole life insurance has a cash and surrender value. Let’s examine more differences by looking at term vs. whole life insurance rates.
Age of Non-Smoker | Rates for 10-year Term | Rates for 20-year Term | Rates for 30-year Term |
---|---|---|---|
25 | $8.12 | $9.09 | $11.91 |
30 | $8.16 | $9.13 | $12.51 |
35 | $8.22 | $9.40 | $13.50 |
40 | $9.52 | $11.35 | $18.09 |
45 | $12.23 | $15.60 | $22.92 |
50 | $15.15 | $21.45 | $34.35 |
55 | $19.49 | $31.54 | N/A |
60 | $28.35 | $50.52 | N/A |
65 | $49.50 | N/A | N/A |
Some permanent insurance policies have complex concepts, such as universal life insurance and variable universal life insurance. Term life policy is much simpler and cheaper, but this type of life policy doesn’t have the savings benefit of a permanent policy.
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Case Studies: Cash Value vs. Surrender Value
Case Study 1: John’s Whole Life Insurance Policy
John purchased a whole life insurance policy with a death benefit of $250,000. Over 15 years, he made annual premium payments of $1,000. At the end of this period, the cash value of his policy reached $15,000.
John had the option to withdraw from this accumulated cash value; however, his insurance provider would charge a fee for accessing the funds.
John decided to cancel his policy and discovered that there was a 30 percent surrender fee. As a result, $4,500 was deducted from his $15,000 cash value, leaving him with a surrender value of $10,500.
Case Study 2: Sarah’s Term Life Insurance Policy
Sarah had a term life insurance policy, which does not accumulate cash value. She decided to cancel her policy, but since there was no surrender value associated with term life insurance, she did not receive any refund for canceling the policy.
Case Study 3: Michael’s Universal Life Insurance Policy
Michael opted for a universal life insurance policy, which offered both cash value and surrender value. Over time, he accumulated a substantial cash value within his policy. He utilized the cash value as an investment opportunity, allowing him to grow his savings.
Michael valued the flexibility and potential growth of the cash value component in his policy, even though it came with higher premiums compared to term life insurance.
Case Study 4: Emily’s Comparison of Permanent and Term Life Insurance
Emily compared cash value and surrender value in both permanent and term life insurance policies. She discovered that only permanent policies, such as whole life insurance, had cash and surrender values.
On the other hand, term life insurance did not offer these features. Emily found that permanent policies provided investment opportunities and savings benefits, while term policies were simpler and more affordable.
Cash Value vs. Surrender Value: What is the bottom line?
A cash value can be useful, especially for policy owners who have had their life insurance policy. To access more saving and investment opportunities with cash value life insurance, buy permanent policies like universal or variable whole life insurance. These policies are more expensive but come with more investment opportunities.
If you need cheap life insurance plans, you may want to explore term life insurance quotes. Use our life insurance comparison tool above to compare different policies and cash value options from life insurance companies in your area.
Frequently Asked Questions
What’s the difference between cash value and surrender value?
Cash value is the total value of the policy, while surrender value is what you get when you cancel the policy after deducting any fees.
How does cash value work in life insurance?
Cash value grows over time as you pay premiums. It’s like a savings account within your policy.
Can I borrow money against my life insurance?
Yes, with permanent life insurance, you can borrow against the policy’s cash value.
Can I cash out term life insurance?
No, term life insurance doesn’t have a cash value that can be cashed out.
How do I calculate the surrender value of my life insurance policy?
Add up to the total amount of premiums you’ve paid for the life of the policy, then subtract the surrender fees your insurer charges to get the surrender value.
Your life insurance quotes are always free.
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Rachael Brennan
Licensed Insurance Agent
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...
Licensed Insurance Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.