What is the cash surrender value of life insurance?

Cash surrender value is the actual amount of money you will receive if you choose to terminate a permanent life insurance policy before its maturity date, or before you die. That value differs from your life insurance policy's cash value which is the total sum compiled in your policy's cash account.

Your cash surrender value is the amount of cash you've built, minus any surrender charges or fees. Those charges diminish with time, so the longer you've had your account, the closer the cash surrender value will be to the cash value.

In most cases, your policy’s cash surrender value will be paid in a lump sum. Depending on your policy, however, you may receive periodic payments over time. To determine what that value is and how it is paid out, you have to look at your policy contract, which should spell out all those details.

Remember that cash value in whole and universal life insurance policies grows tax-deferred. As long as the money remains in the policy, it's not taxed, so it can grow faster. However, once cash value is withdrawn from the policy (or the policy is surrendered), you may owe taxes if you receive more in surrender value than the sum of premiums you paid into the policy.

Life insurance comes in two primary forms: term life and permanent life. Term life insurance is typically less expensive, but it only lasts for a limited period of time – the term of the policy, typically 10 or 20 years. Term policies don’t build cash value, so of course, there’s no cash surrender value.

Unlike term life insurance, permanent life insurance builds cash value and is available in several forms. The most popular types of permanent insurance are whole life and universal life.

• Whole life insurance has a guaranteed premium and a guaranteed cash value.³ With whole life, you pay the same premium each month for the life of the policy, and your cash value grows at a rate guaranteed by your insurance company. If you get the policy from a mutual company (like Guardian), you may also earn dividends, which can help the cash value grow beyond the guaranteed value.⁴
• Universal life insurance typically costs less than whole life but does not provide the same guarantees.⁵ Both the cash value and cash surrender value amount are based on current interest rates, which may go up or down throughout the life of the policy. Universal life policies also let you raise or lower your premium payments within a certain limit – but if you pay minimal premiums too long, it can impact the cash account and death benefit, and may even cause your policy to lapse.⁶ There are also several variations on this type of policy. For example, a variable universal life policy lets you allocate the cash value into investment options called "subaccounts.”⁷ This provides the potential for greater cash value growth and the risk of losses if your investments go down in value.

Your whole life cash surrender value is the guaranteed cash value shown on your policy plus the value of any dividends accumulated in the policy.

Your universal life cash surrender value is the current cash value of your policy less any surrender charges. And, if you’ve had the policy for 10-15 years, the surrender fees typically go away.

Or in either case, you can contact your financial representative or life insurance company for current cash surrender value. Your policy’s surrender value could well be higher than the amount paid in, and you may owe taxes on the difference.

There are two downsides to surrendering your life insurance policy. First, you lose your life insurance protection. Second, you may have to pay fees and lose some of your cash value. Fortunately, if you want to access your cash value – or find that you can no longer afford the premiums – there are other choices you can make:

• Withdrawal 
  In most situations, you can take a cash withdrawal from your permanent life policy, and that money will not be subject to income taxes if it’s less than the amount paid into the policy. However, there are potential disadvantages: First, your death benefit will likely be reduced, depending on your cash value. Also, that reduction may be greater than the amount withdrawn, depending on the specific terms of your policy.
• Loans 
  You can typically borrow money against your policy, although the amount varies. The money does not come from your policy but rather from the insurer who uses your policy as collateral. Life insurance loans include interest payments, but it's typically a lower rate than you'd get with personal loans or even a home equity loan. No loan application or credit check is required, and your credit rating does not impact your interest rate. You can choose not to repay, but the outstanding loan balance will typically be deducted from your death benefit. A policy loan can be an option to consider if you need cash but want to keep the full death benefit in force after repaying the loan amount.
• Use cash value to pay your life insurance premiums 
  You can typically use the money in your cash value to pay part or all your policy premiums, making it easier to keep your coverage in place. This is a popular option for older policyholders who want to use retirement income for living expenses but still want to keep life insurance coverage in place. However, if the policy's cash value becomes too low, your policy may lapse.

Talk to your agent or life insurance company for the specifics of how withdrawal, loans, premium payment, and surrender work for your cash value life insurance policy.

As with any other financial services product, the decision to get a policy with cash value – and cash surrender value – comes down to your life situation and goals. If you want life insurance protection that lasts your entire life, then a permanent life insurance policy with a cash surrender from an experienced provider can be a valuable choice for your needs. If you’d like to learn more, contact Guardian to find a financial professional who will take the time to learn about your unique situation, listen to your concerns, and clearly explain the different insurance options that best fit your needs and your budget – from a company that’s been helping protect families for over 160 years.

1. Permanent life insurance offers cash surrender value if you cash in your policy before the maturity date; term life insurance policies do not.
2. Cash surrender value equals your policy's cash value, minus any surrender fees.
3. Surrendering (cashing in) your policy is not always the best option. You can access policy cash in other ways, for example, with a policy loan.
4. If you have a permanent policy, talk to your life insurance provider to determine the best options for accessing policy cash value.

How do I calculate the cash surrender value amount of an insurance policy?

Your whole life cash surrender value is the guaranteed case value shown on your policy plus the value of any dividends accumulated in the policy.

Your universal life cash surrender value is the current case value of your policy less any surrender charges. And, if you’ve had the policy for 10-15 years, the surrender fees typically go away.

But in either case, you can contact your life insurance company for your current surrender value. Also, if your cash surrender value is higher than the amount you’ve paid into your policy, you will likely have to pay taxes on the difference.

What is the difference between cash value and surrender value?

Cash value is the amount of money accrued in your policy's cash value, including any compound interest. The surrender value refers to the cash value minus any surrender fees due when you cash in your life insurance policy.

Is the cash value of life insurance taxable when surrendered?

It can be. If your cash value is higher than the amount you've paid into your life insurance policy, you may owe taxes on the difference.