Cash Surrender Value

Fact-checked with HomeInsurance.com

1

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for

Which bank should I choose?

Get personalized bank recommendations in 3 easy steps.

Life insurance is a useful tool, but there may be times when you wish you could wave those premiums away and get some of your money back. Thankfully, some insurance policies do give you that option, although not all of them. When it comes to cash surrender life insurance, term life insurance does not offer any. However, whole life, permanent life, variable life and universal life all have cash value components.

If you’re wondering what the cash surrender value of life insurance is, then you’ve come to the right place. This article will take you through the definition of cash surrender value, the determination of cash value amounts and how to know when this option makes sense.

What is cash surrender value?

By now, you might be wondering ‘what does cash surrender mean?’ Cash surrender value is the cash value of the investments made within your life insurance policy after any surrender fees have been subtracted. As noted above, term life insurance policies do not have this component. With certain types of life insurance policies, there is a portion of your premiums that are invested. Depending on which type of policy this is, that investment will move with market subaccounts, rely on internal company calculations or grow at the current standard interest rate.

How is cash surrender value determined?

Depending on the type of life insurance policy, the cash surrender value can be determined in a couple of different ways. For variable life policies, the value of the investment fluctuates with the sub-accounts that it is invested within. For whole life policies, the value grows at a company guaranteed rate. With universal life policies, the value grows at the industry standard rate. The list below goes into greater detail of how cash surrender value is determined.

  • Duration of account: The duration of your account plays the biggest role as it reflects both how long you have been paying into it as well as how long your investment has had to grow.
  • Amount paid: A portion of your premiums makes up your investment capital. As such, the more you pay, the bigger your investment is.
  • Market performance: If your investment is tied to the market, then market performance becomes the dominant factor. When the market does well, your investment will do well.

Before you can take your cash surrender value, though, you must pass through the surrender period. This surrender period is a specified amount of time that must pass before you can access the cash value of your policy. This waiting period can be as long as several years. Still, it may be much shorter, depending on the plan and the company.

Surrender fees

Most companies charge surrender fees when you claim the cash surrender value of your life insurance policy. In general, these fees are more expensive for newer policies and decrease over time. Surrender fees vary quite a bit between plans and depending on the age or duration of the policy in question. However, it is common to see surrender fees in the range of 10 percent to 35 percent.

For instance, let’s say you have a twelve-year-old life insurance policy with a cash value of $7,000 in it. You decide to surrender your plan for the cash value. After your insurance company adjusts for their surrender fee of 20 percent, you receive $5,600, and the company takes $1,400 in fees. The amount you receive is the cash surrender value, while the initial amount is the base cash value.

Is surrendering your policy worth it?

Depending on your situation, it may be worth it to surrender your policy. If you are planning on switching to a different life insurance policy, especially if it’s with another company, then surrendering your policy makes a lot of sense. Another potentially good time to surrender your plan is if you switch jobs and your new one offers free or subsidized life insurance. Of course, you might also surrender your policy if you are in vital need of immediate cash and have no other options. This final motivation, however, should be a last resort. In such a situation, taking out a personal loan may make more sense.

Surrendering your policy isn’t always going to be a wise choice. First off, you won’t be getting back everything you spent on premiums over the years. Perhaps a third of your premiums go into cash value investments. Even then, the company will take a portion of that through surrender fees. At the end of it all, you’ll be getting less than a third of the value of what you paid for. The cash surrender value isn’t a refund, it’s only returning your investment while taking into account any gains or losses.

Alternatives to surrendering your policy

  • In many cases, you can make a direct withdrawal from your cash value. You have to leave a significant amount of it in place but can withdraw and use the rest.
  • Another means of gaining quick money through your life insurance policy is a policy loan. These are personal loans that use your life insurance policy as collateral.
  • If you’re determined to cancel the policy, then you can sell it instead. This will net you more than the cash surrender value while still taking the plan off of your hands. This transaction is called a life settlement.

Frequently asked questions

What is cash surrender value?

Cash surrender value is the cash value of the investments made within your life insurance policy after relevant surrender fees have been subtracted.

What is a surrender period?

Most policies will require that they be active for a specific period of time—often years—before they can be surrendered for their cash value. This waiting period is called the surrender period.

Can I sell my life insurance policy?

Yes, you can contact your agent at your insurance company and inform them that you would like to make a life settlement on your life insurance policy.

How much will I get if I surrender my policy?

In general, you might see roughly one-third of your premiums paid, minus ten to thirty percent. This value will vary by policy and company.