What is Cash Surrender Value for Life Insurance?

What is Cash Surrender Value for Life Insurance?

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According to the American Council of Life Insurers, life insurance remains a big business in the US, with over $78 billion paid to life insurance beneficiaries in 2019. It remains an essential part of many people’s retirement plans and investment portfolios.


Purchasing life insurance is usually a smart investment move, but many people make this purchase before they know their needs later in life.


 You may end up with a life insurance policy that you do not need due to changing life situations. Paying premiums each month may not be the best use of your resources, or perhaps the policy is underperforming, and you think your investments may be better held elsewhere. You may need cash immediately for a considerable expense.


In these cases, there are options. You may decide to seek a cash surrender of your policy or a life settlement. There are many reasons to consider surrendering your life insurance policy, but it is a crucial financial decision to consider carefully.


 Read on to learn more about cash surrender value for life insurance, how it is calculated, and what options exist. Then reach out to the experts at Apex Life Settlements for more information on settlements and surrenders. Only your carrier can tell you the value of any settlement or surrender.  

 Cash Surrender Value for Life Insurance

 The cash surrender value for life insurance is the amount of cash a permanent life insurance policy pays when voluntarily surrendered. When you decide to surrender your life insurance policy for cash, you are exchanging the future death benefit for an immediate cash payout. It is the savings part of permanent life insurance policies.


In many cases, any gain on the policy is taxable as income, even though the death benefit itself is tax-exempt. The part of the policy paid by you in premiums is not taxed – this is called the policy basis. However, gains above this amount paid in premiums are taxed – these are funds gained by interest and investments.


You may also need to pay surrender fees, depending on the policy terms, the carrier, and your policy’s age. As the policy ages, you may no longer have a surrender fee.

 Cash Value Versus Cash Surrender Value

 As with many insurance terms, cash value and cash surrender value have different meanings. Cash value is the savings money held in your account that accrues over time within a permanent life insurance policy. Some of the money you pay in premiums is allocated by your carrier to investments, which builds up your cash value as these investments earn money.


 The cash surrender value, however, is a different amount. It is the amount you receive if you voluntarily surrender your policy before maturation or before the insured event happens. The cash surrender value is generally the cash value that has accrued less the surrender fees and charges your insurance company applies for early termination of the policy.


 As the policy ages, these fees drop off, so the policy’s cash value and surrender cash value will likely be the same amount at some point in time.

  How is the Cash Surrender Value of Life Insurance Calculated?

 The cash surrender value of life insurance is simply the accumulated account value, also referred to as cash value, less any surrender fees.   

 Life Settlements

Another option to consider instead of surrendering your life insurance policy for cash is a life settlement. Life settlement solutions include your policy’s sale to an investor or third-party group that will pay you an immediate benefit. The buyer takes overpaying the premiums and owns the policy. 


Life settlements can be attractive options for universal and whole life policies and term policies that convert to permanent ones. The payout from a life settlement

Cash Surrender Value for Life Insurance

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solution can be much greater than the policy’s cash surrender value, although the amount will still be less than the eventual death benefit.

There are several different situations in which you may consider seeking a life settlement. They could be attractive options for individuals who:


  • No longer need life insurance
  • Cannot afford or do not want to pay premiums
  • Want to invest money in other investment vehicles
  • Need money now to pay a debt or make an expensive purchase
  • Have a term policy that will expire soon
  • Need to pay for assisted senior living facilities or advanced medical care

 Viatical Settlement

 A special type of life settlement is known as a viatical settlement. A viatical settlement is when a terminally or chronically ill person arranges to sell their life insurance policy to a third party. That third party pays a lump sum to the policyholder, takes overpayment of the premiums, and becomes the policy’s beneficiary. A viatical settlement provider can help by providing cash upfront to help with medical bills or other financial needs, giving the terminally ill policyholder peace of mind.


Viatical settlements are complex financial decisions that should be carefully considered before you make a decision. To qualify for a viatical settlement, the policyholder must be terminally or chronically ill and unable to perform at least two activities of daily living as supported through medical documentation. 


Additionally, the policy must be at least two years old with a face value of at least $100,000. Other qualifications may be required. 


Viatical settlements are generally not subject to federal taxation, but your state may have different rules. However, if you have debts, your creditors may be able to access your settlement to repay those debts, reducing your settlement amount. Life settlement advisors can help you learn more.

Other Types of Life Settlements

 In addition to a viatical settlement, there are other types of life settlements to know about.

  • Traditional – A traditional life settlement is designed for individuals 65 and older with a life insurance policy face value of at least $100,000.


  • Retained Death Benefit – This type of life settlement allows the policyholder to retain some portion of the death benefit after the life settlement. The buyer still pays premiums and owns the policy, but the death benefit is divided between the buyer and the original owner.

 Pros and Cons of Accepting a Life Settlement

The benefits of a life settlement are usually financial – receiving an immediate cash payout and not paying premiums each month going forward are both strong incentives to pursue a life settlement. If you have medical bills or need an assisted living facility or nursing level of care, your financial need may help you decide to accept a life settlement. If qualified, the settlement value will be higher than the surrender value.

However, the clear negative is that you lose the death benefit. There may be tax disadvantages and Medicaid eligibility concerns that come with accepting a life settlement.

 How to Seek a Life Settlement

If you decide a life settlement is right for you, the process is straight-forward. First, you will need to apply and provide information for the underwriters to make a decision. 

This includes signing releases for your doctors to release your medical information. Next, all the information gathered about your policy, health, and other details are reviewed to determine your policy’s value and offer.

Once this thorough review of your unique situation is completed, your provider will extend an offer to you. You can accept or refuse this offer – it is 100% up to you whether to accept or decline. If you accept the offer, paperwork is sent to your insurance company to change the owner and beneficiary. Once that is finalized, your provider will send you your payment check or direct deposit.

 Selling a Term Life Insurance Policy

The process for selling a term life insurance policy for cash differs from if you had a universal or whole life policy. While term life insurance does not have a cash surrender value, you may still be able to sell it. If your term policy carries the option to convert to a permanent policy, you can convert it then seek a life settlement offer.

Final Thoughts

Life insurance is an essential savings and retirement strategy. When you purchased your life insurance policy, you did protect your financial future and your family. However, you may have had different goals back then. Life changes, and your insurance policy may need to change with it. If you find your current life insurance policy no longer meets your financial goals, considering a cash surrender or lifetime settlement option may be a smart financial move.


The immediate benefits of a cash surrender may not outweigh the long-term impact, though. Taxes, surrender fees, and the loss of the eventual death benefit may outweigh the cash benefit. Every life insurance carrier, policy, and individual situation differs, so do your research and consult your agent or financial advisor for more information.

How to Learn More

To learn more about cash surrender value for life insurance, contact your carrier to see what your value is.


Should I Sell my Life Insurance Policy?

  • Deciding to sell your life insurance policy is a big decision. Once you have researched all your options, decide if you want to engage a broker or work with a carrier directly. 
  • There are many instances in which you may want to sell your policy. For example, if you no longer need the policy, cannot afford the monthly premiums, or need immediate cash selling your life insurance policy may help.
  • Fees may apply if you decide to employ a broker
  • Depending on your circumstances, you may be taxed on part or all of the cash from the sale of your life insurance policy. Funds you receive may affect your eligibility for Medicaid.
  • The type of life insurance policy you have may determine if you can sell it.

What is the Cash Surrender Value of Life Insurance Policies?

  • The cash surrender value of life insurance policies is an amount the life insurance company pays if the policyholder surrenders their policy before the insured event occurs. 
  • It is the savings component of a permanent life insurance policy.

What Kind of Life Insurance Policies may I Surrender for Cash Value?

  • If you have a whole or universal policy, it accrues cash, and you can surrender it for cash value.
  • If you have a term policy, surrendering it means not paying the premium any longer. Still, it does not net you cashback from the policy.

What is the Difference Between a Traditional Life Settlement and a Viatical Settlement?

  • Similarly, a viatical settlement is a type of life settlement designed for chronically ill people or who have terminal medical conditions. Medical records are required to verify this eligibility requirement.
  • Other types of life settlements are not limited to people with chronic or terminal medical conditions. However, many insurance companies limit traditional life settlements to people who are 65 years or older.
  • In many cases, both viatical and traditional life settlements often require policies with a face value of at least $100,000.

Are Cash Value and Surrender Cash Value the Same?

  • While the terms are similar, they have distinct meanings.
  • Cash value means the savings money held in your account that accrues over time within a permanent life insurance policy.
  • Cash value builds up because a portion of your premium is invested by your life insurance company, which grows the savings part of your policy.
  • On the other hand, cash surrender value is the amount your insurance company will pay if you voluntarily surrender your policy before the death benefit is triggered.
  • The cash surrender value and cash value will eventually be the same amount in most cases. As the policy ages, surrender and early termination fees decrease until there is no fee.

Can I Seek a Cash Surrender for my Term Life Insurance Policy?

  • If it is a convertible term policy, you may convert the policy to a permanent one and then proceed with a lifetime settlement or cash surrender.

Don’t lose your lifelong investment. Discover your policy’s value today.