How to Compute Cash Surrender Value
Certain insurance products allow policy or contract owners to maintain cash balance within the policy. Permanent life insurance policies such as whole or universal life insurance and annuity contracts both allow an accumulation of cash not directly applied to premiums unless elected by the policy owner in life insurance policies; annuities are tax-deferred savings contracts. As the contract owner, you can take the cash value out, less any surrender charges. Surrender charges are penalties assessed in the early policy or contract years. The cash surrender value is contingent on these charges.
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Instructions
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1
Read the insurance contract to determine what your surrender charge schedule is. Life insurance and annuities both use a schedule that takes a percentage of the distributed cash value. A typical surrender schedule might last seven years starting at a 7 percent charge in the first year and declining 1 percent on every anniversary date.
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2
Contact the insurance company to obtain your most recent cash value amount in the policy. Variable policies adjust daily, and recent statements might not be indicative of the total cash you actually have in the account. Confirm where you are in the surrender schedule and what the surrender penalty percentage is and the amount of the fee.
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Assume a $100,000 cash value is surrendered in the third year of a seven-year contract. If the surrender charges start at 7 percent and drop 1 percent each year, the surrender schedule is as follows: 7 percent, 6 percent, 5 percent, 4 percent, 3 percent, 2 percent and 1 percent. Once the seven years are done, there is no surrender charge.
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Multiply the current cash value, $100,000, by the surrender charge, 5 percent. This is $5,000.
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Subtract the surrender charge from the total cash value, leaving $95,000 as cash surrender value.
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Tips & Warnings
Once you are out of the surrender charge schedule period, all cash value can be distributed without penalty.
Withdrawals of earnings of life insurance and annuities are added to annual income for tax purposes, and may incur a 10 percent penalty if you are not yet 59 1/2 years of age.
