Cash Value vs. Surrender Value: Which Is Better for You

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 how both values affect life insurance for this guide.

If you want to compare cash value vs. surrender value with a life insurance company, enter your ZIP code in the free comparison tool above to see life insurance quotes from different companies.

What is the difference between cash value vs. surrender value?

If you have permanent life insurance, you’ll come to know the difference between cash surrender value vs. cash value. Although they sound like they’re the same, these two permanent life insurance factors are quite different.

Your life insurance quotes are always free.

 Secured with SHA-256 Encryption

How is cash value different from death benefits?

Cash value life insurance money is assets you build from a monthly premium, while death benefits provide your beneficiary a financial blanket after the insured has passed away.

According to the Internal Revenue Service (IRS), death benefits paid to a beneficiary aren’t gross income and don’t have to be reported. However, any money you receive (i.e., surrender value) is taxable income.

What is a cash value?

This is the sum of money you’ve built up while paying for life coverage. Different types of term life insurance policies don’t have values, but permanent policies do.

How does it work?

As you pay your monthly rates, a portion of your monthly payments goes toward an account, and the other part is your policy. The account holds your accumulated cash.

Some accounts allow you to make investments, such as bond portfolios and other types of investments.

Your life insurance quotes are always free.

 Secured with SHA-256 Encryption

What is a cash surrender value?

This involves the amount you’ll receive from your provider when you want to access funds. Any early withdrawals come with a penalty. However, penalties won’t affect your credit.

How does cash surrender value work?

You can withdraw the accumulated premiums‘ money value. The surrender fees will be applied when you take money from your cash value. Therefore, you won’t receive the full amount.

Surrender fees, or surrender charges, are based on a percentage. Each company that provides a permanent policy has a different percentage. Shop around until you can find a surrender charge that works for you.

What is an example of cash value life vs. cash surrender value?

Let’s say 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.

Before you withdraw your cash value from a guaranteed universal life insurance policy, you see that a 30 percent surrender fee will affect your cash value when you take money from your life insurance account. The surrender charge will deduct $4,500 from your $15,000 cash value. Therefore, your surrender value is $10,500.

Your life insurance quotes are always free.

 Secured with SHA-256 Encryption

Can I borrow money against my life insurance?

You don’t have to withdraw money from your life insurance account. Did you know you can borrow against your death benefits?

Permanent life insurance companies allow policyholders to get a loan against their death benefits. However, an unpaid loan will decrease death benefits to beneficiaries.

Does permanent life insurance fit your lifestyle?

There are many benefits to permanent insurance policies like whole life insurance, but is it something you need to have?

Let’s examine the differences by looking at term vs whole life insurance products.

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.

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. If you need cheap life insurance plans, you may want to explore term life insurance quotes. To access more saving and investment opportunities, buy life insurance policies like whole life and universal life.

Affordable life insurance is obtainable. Find a permanent life insurance company with decent cash value policies vs. surrender value percentages by entering your ZIP code in the free online tool below.

Your life insurance quotes are always free.

 Secured with SHA-256 Encryption