Cash surrender value of life insurance

Permanent life insurance has a cash surrender value which you can access as a policyholder.

Policies like whole life insurance always help policyholders save and withdraw from it in case they need money urgently. 

However, you still need to pay back your loan or the money you borrowed from the cash value build-up.

Perhaps, you no longer want to maintain the policy, and you want to intentionally end it, this is where the cash surrender charge comes in.

So, if you make up your mind to call off your policy, no one goes empty-handed.

The insurance provider gets compensation, and the policyholder gets their money too.

What is the cash surrender value of life insurance? 

The cash surrender value is the amount of money an insurance provider remits to a policyholder when they surrender their policy.

In life insurance, when a Policyholder decides to surrender their policy due to one reason or the other, they must go through some requirements which will make the insurance company cancel the policy, finally.

Sometimes the reason why policyholders decide to terminate it is that maybe it’s no longer beneficial to the policyholder, it becomes too expensive, or the policyholder may need urgent money. 

If this should be the case, the policyholder will demand a cancellation of the policy and pay the surrender charge. In turn, the insurance company will pay the policyholder a lump sum of money from the policy. 

How does cash surrender value work? 

Firstly, this may not work for all life insurance plans. It does not mean that you cannot cancel or terminate other insurance plans however, the cash surrender value is only specific to certain kinds of policies.

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As a permanent life insurance policyholder who wants to terminate their policy, you must make sure that it is not a new policy.

You have to wait for your policy to mature and build up cash value. It might take years to build because the savings part of your policy is sent to an account that will generate interest for you. 

So, your savings will not grow overnight, and you need to religiously pay your premiums as well.

When you believe that your policy has built enough cash value, and you wish to terminate it, the insurance company will start the process which involves a surrender charge. After which they will pay you your cash surrender value.

When you receive this lump sum of money, the company terminates your policy which means that you will no longer pay more premiums and you won’t receive any beneficiary benefits again.

 We know that permanent life insurance covers you for the rest of your life but with this method, you can terminate it.

Which life insurance policies have the surrender cash value? 

Any life insurance policy without the cash value feature will not have the cash surrender value. Whole life insurance, universal life, or variable universal can be terminated for cash payments. 

Say you operate term life insurance, there are different methods that you may use to get money out of your policy, but certainly not cash surrender value.

How much is the cash value of the terminated policy? 

There’s no specific amount for everybody that terminated their policy. The amount you get depends on how long you have had your policy. 

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A policy that has lasted for at least 40 years before termination cannot be compared to a policy that has lasted for only 20 years before it got terminated. 

The money in your cash value is growth-dependent on your type of policy. 

A policyholder with a whole life policy received dividends. The policyholder may decide to reinvest into the savings account.

Also, the Universal policy has a savings feature in which the interest rates depend on the market value of the moment. 

After determining the market trade, the interest rate gets paid into your cash value.

Therefore cash surrender value is best when you have an old policy. And the amount of interest and dividends your cash value gets. 

Can you pay tax on your cash surrender value? 

If you are referring to the dividend you get from your policy and all the interest, then you must pay tax on those.

However, the real cash surrender value comes tax-free. After you pay your surrender charge, the lump sum of money from the insurance company does not require any tax.

Still, if you took out a loan before surrendering your policy, you must pay back that loan, and the loan becomes taxable.

Cash value Vs cash surrender value

Permanent life insurance allows you to enjoy both cash value and cash surrender value.

First, none of these policies are taxable, and you can enjoy these features from certain policies.

Life cash value permits you to borrow from your cash build-up on your policy in case you run short of money or you require emergency funds.

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However, you must pay back what you borrowed, or else the insurance company will deduct it from your beneficiary benefits. 

When you borrow from your cash value, it does not terminate your policy. You will continue to pay your premiums, and every other thing stays in place until you decide not to pay your loan. Even at that, only the beneficiary benefits feel the weight of your debt. 

Cash surrender value, on the other hand, terminates the policy and shuts it down permanently but you will get your lump sum of money from the insurance company.


Your policy determines what may work for you and what won’t work. 

It all depends on what you want from a policy so that nothing takes you unawares when you need to act or even file a claim. 

Policyholders must be sure of the features and clauses guiding their policy before signing the papers.

For what it’s worth, you can enjoy your life insurance policies if you get what works for you and makes you happy while paying your premium.

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