What Is Cash Surrender Value Of Life Insurance?


Life insurance policies have specific terms that are important to understand — cash surrender is one of those terms. This value represents the total amount of dollars that have been accumulated in a life insurance policy over a specific period of time. As a policyholder, you can access this dollar amount before your policy ends.

Understanding Cash Surrender Value

Cash surrender value is only offered when you enroll in a permanent life insurance policy. These policies include universal life and whole life. The advantage of using one of these policies is that they offer a death benefit as well as a premium savings component. You don’t have that option if you choose a term life policy — there’s no payout available before the policy matures. While having the ability to access the cash surrender value before maturity is an advantage, you can also expect to pay a higher premium if you choose a universal life or whole life policy.

Watch Your Cash Value Grow

Initially, the cash surrender value of your policy will be low. The insurance company that you use will want to stay profitable by not paying out too much during the beginning timeline of your policy. However, as time passes, the cash surrender value of your whole life or universal life policy will begin to increase. At that point, you usually have a few options:

– Access your surrender value and terminate your policy
– Take a loan out against your surrender value and keep your policy active
– Utilize a portion of your surrender value and keep your policy active

Life insurance policies will often offer different options. With many of these policies, you can usually take out a portion of your surrender value and still keep your policy active — be sure to check the terms before you fill out an application to see if this is possible. Some insurance companies will automatically terminate your policy when your surrender value is accessed. Another option that life insurance companies offer is the ability to just take out a loan. You can use the accumulated cash that you have built up as collateral.

Tax Advantage Of Cash Surrender Value

If you ever need some extra money for an emergency or worthwhile project like building a new deck for your home or renovating a room, you can take a loan out against the value of your cash surrender if you have a whole life or universal life policy that contains this option. You will avoid a credit check and, it’s tax-free if you follow a few guidelines. Each month that you pay a premium, you’ll build the value of your cash surrender amount. If you ever decide to take out a loan that is less than the amount you have paid in premiums, you will not have to pay any taxes on the amount that you receive. As an example, if you’ve paid $15,000 in premiums and want to obtain a loan for $15,000, you won’t pay any taxes on that amount.

If you do decide to withdraw cash from your whole life or universal life policy before it matures, it may be wise to talk to your accountant to verify the tax implications.