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November 15, 2019

What is a Life Insurance Cash Surrender Value and Does it Pay Out in Addition to the Death Benefit?

life insurance surrender value

When you think of life insurance, you probably think of it as a policy you buy that will pay a benefit to your beneficiary in the event of your death. But some kinds of life insurance include another element, and that’s cash value.

According to NerdWallet, “whole life insurance and other types of permanent life insurance policies, such as universal life, usually include a ‘cash value’ account, which builds value over time.”1

The definition of Cash Surrender Value, according to The Balance, is “the cash value of the accumulated investment portion of a whole life insurance or universal life insurance policy payable to the policyholder upon cancellation of the policy.”2 The Balance goes on to say that when a life insurance policy is surrendered, the policyowner is requesting to cancel the policy in exchange for the cash value that has accumulated, and fees will most likely be charged.

If the policyholder dies while the insurance policy is still in place, then his or her beneficiaries will receive the death benefit, and “any remaining cash value goes back to the insurance company,” according to Investopedia.3 Investopedia recommends several ways to avoid losing your cash value this way, including:

  • Boosting the death benefit by asking the insurance company to increase the death benefit in exchange for the policy’s cash value;
  • Asking the insurance company to use your cash value to cover your premium payments;
  • Taking out a loan against the policy (you don’t have to pay it back, but the loan plus interest will be deducted from the death benefit upon your death);
  • Making a withdrawal (be sure to understand how much this will impact the death benefit first);
  • Supplementing your retirement income (speak with your licensed insurance agent or financial advisor first); and
  • Fully surrendering your policy for its cash value (like we mentioned above).3

It’s important to consult with a financial advisor and speak to your insurance company before pursuing any of these options so you understand everything your choice entails.

If you have a life insurance policy that has cash value, it’s important to look into all of your options to make the most of your investment. Speak with a financial advisor or a licensed insurance agent to make the decision that’s right for you.

  1. NerdWallet, Types of Life Insurance, 2017
  2. The Balance, How is the Cash Surrender Value Calculated on Insurance?, 2018
  3. Investopedia, 6 Ways to Capture the Cash Value in Life Insurance, 2019

Categories: Insurance, Group Life

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