What does Cash Surrender Value on a Life Insurance Policy Mean?

What does cash surrender value on a life insurance policy mean?

Considering cashing out your whole life insurance policy? It can be confusing. We will help explain the process, along with the pros and cons of surrendering a whole life insurance policy.

First, check to see if you have a whole life policy. Whole life policies  typically have a cash value and most term life policies do not.

The policyholder of a whole life insurance policy can only cash out the amount of money that has been accumulated as the cash value of the policy.

The cash value is the amount of cash that accumulates within a life insurance policy over time as the premiums are paid on time. Depending on the policy terms, the cash value and the cash surrender value may be the same amount, or the cash surrender value may be less than the cash value due to a surrender fee.

You should remember, there may be surrender fees. Check the policy terms or ask the insurance company to determine what the fees will be for surrendering the insurance policy.¹ The fees vary from policy to policy and between insurance companies. Once the policy is surrendered, the life insurance coverage is no longer active, and the policy may not be able to be reinstated.²

The policyholder of a whole life insurance policy can only cash out the amount of money that has been accumulated as the cash value of the policy.

Why would you surrender your life insurance policy?

An example of choosing to surrender a whole life insurance policy: business partners who own a small to medium-sized business may buy a whole life insurance policy covering each partner. If one of the partners dies and leaves the company financially weakened, then the other partner would benefit from the policy. However, if the company is sold, there may no longer be a need for whole life insurance, and the partners may decide to surrender the policy to retain the cash value. Another reason might be the policyholder may have a financial need for the money. Or perhaps, the policyholder has been diagnosed with a terminal or chronic illness and wishes to use the money now.

How do you calculate the fees?

To determine your cash surrender value, you should review the terms of your policy. Be sure to consider any surrender fees the company may charge for surrendering the policy. It is important to carefully consider the implications of surrendering your whole life insurance policy. Before doing so, you should gather your research, weigh the pros and cons, and speak to a licensed insurance agent.³