What Is the Surrender Value of a Life Insurance Policy?

While providing an immediate payment to your beneficiaries in the event of your death, whole life insurance policies are designed to build cash value over time. If at any point you decide to cancel the insurance, you will be paid the policy's surrender value.

Function

As you pay life insurance premiums, a certain amount is diverted to savings. This amount grows slowly at first and more rapidly the longer you hold the policy.

Misconceptions

The face value of your policy is not the amount you would receive when you surrender the policy. Instead, it is the amount your beneficiaries would receive upon your death. The surrender value might be much less.

Benefits

If you no longer have a need for life insurance but need immediate cash, you might wish to surrender the policy instead of continuing paying premiums.

Considerations

Your insurance policy might allow you to take loans against the cash value. This allows you to remain insured while still having ready access to cash without borrowing from banks.

Warning

If you surrender a policy, then decide you still need insurance, you can pay much higher premiums because of advanced age or declined health for a new policy.

References

• Surrendering a Life Insurance Policy