Cash Surrender Value of Life Insurance – How Much Your Policy Is Worth

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If you have family members relying on your income, a family house mortgage to pay, or school-age children needing college tuition, you should consider purchasing a life insurance policy.

Some policyholders use their policies, such as whole life policy, universal life policy, or variable universal life insurance policies, as an investment tool for growing tax free retirement assets. Unfortunately, term life insurance policies cannot be used as investment tools as they only provide death benefit protection without a cash value accumulation component.

But what happens once your kids have grown up, finished college, and you feel you no longer need your life policy? Is there an option to cancel the insurance policy you bought several years or even decades ago? And more importantly, is there an option to get some of your money back?

Many life insurance policies offer the option to cancel the policy. Depending on the type of insurance policy, you may have several alternatives to surrendering your policy.

To understand how to surrender your life insurance policy, calculate the net cash surrender value, and much more, we suggest reading the rest of the article.

We will cover:

  • Cash value
  • What is the cash surrender value?
  • What is the difference between cash value and surrender value?
  • Reasons to surrender your policy
  • How is cash surrender value determined?
  • Tax and other implications
  • Do I have to pay surrender fees?
  • How to surrender your policy
  • Alternatives to surrendering your policy
  • Surrender period
  • Gain financial independence with Infinite Banking

Cash value

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To understand the cash surrender value, you must understand what cash value is. Cash value is a component of permanent life insurance policies that acts as a savings or investment account, allowing you to accumulate cash and withdraw or borrow against the policy.

As a policy holder, you can use your cash value account to cover unpaid policy premiums, supplement your retirement income, take out a policy loan, or use the policy’s cash as your emergency fund.

The most common types of life insurance offering a cash value component are:

  • Whole life insurance policy
  • Variable life insurance
  • Universal life insurance policy
  • Indexed universal life insurance

Unlike permanent policies, term life insurance offers only a death benefit component with no cash value feature.

What is the cash surrender value of a life insurance policy?

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Your permanent life insurance policy earns cash value over time through premium payments. Once you decide to cancel the policy, your insurance company must pay a portion of cash value or all of it to a policyholder.

The cash surrender value is the amount of money a policyholder would receive from the life insurance provider when they surrender a life insurance policy.

What is the difference between cash value and surrender value?

The main difference between the surrender value and cash value is the charges for early policy termination or early cash withdrawal.


Insurance providers tend to charge fees or penalties for early withdrawals or terminations as they want you to proceed with the premium payments.

Also, when you decide to surrender your life insurance, your insurance company can reduce the policy’s surrender value due to surrender fees. After several years (typically 10 or 15), surrender fees are no longer in effect, making surrender cash value and cash value equal.

Unfortunately, it is not uncommon if your insurance company requires canceling the policy before you can access your cash account. In this case, you may still be allowed to take a loan against the policy’s cash value.

Reasons to surrender your policy

  • you may no longer feel like you need your permanent or term life insurance policy
  • your family members no longer need your support
  • your beneficiaries passed away before you so that no one can receive your policy’s death benefit
  • you got divorced and have no other person to name as your beneficiary
  • you want to change your investment strategy
  • you are struggling and cannot afford to pay premiums
  • you need a cash source quickly

How is cash surrender value determined?

Each month, the policy holder makes premium payments, a part of that payment diverts to the cash value component, and the rest of the money goes towards the death benefit and insurance fees.

With whole life insurance, your policy is designed to grow at a fixed rate to a certain amount of the death benefit when the policy matures.

On the other hand, stable growing cash values are not guaranteed with universal life policies. Suppose your cash-value growth is under the minimum required level of growth needed to sustain the policy’s benefit. In that case, you as a policyholder may be required to put more money into the policy to prevent it from lapsing.

If you want to calculate cash surrender value, you should take several factors into account:

  • what is the total amount of premiums you have paid so far
  • how long your policy has been in force
  • how much interest, dividends, and capital gains your cash value earned
  • cash surrender fees and insurance charges for policy termination

Suppose your policy is relatively new. In that case, your cash value component doesn’t have much time to accumulate money, so you won’t get significant cash value if you cancel your insurance coverage. On top of that, the insurance company may charge hefty surrender fees.

Tax and other implications

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Typically, cash surrender value is a tax free return of principal up to the total amount of paid premiums.

To illustrate, if your premiums were $250 a month of a $100,000 whole life policy and you were regularly paying them for 30 months, you can expect about $7,500 of cash value to be tax-free because you paid that amount in premiums.

But if your cash-value account gains any interest, dividends, or capital gains, you will have to pay taxes on this portion of your income. Generally speaking, any amount above the sum of total payments will be considered taxable income, meaning you will have to pay tax on this sum at the top marginal tax rate.

If you have any uncertainties left about the tax ramifications when surrendering your policy, contact your insurance agent or financial advisor.

However, if you want to keep your policy in force but need to access the cash surrender value in your policy, you can take out a loan against your policy. You will be charged interest to the remaining cash value in the policy, but the loans are tax-free unless you surrender the policy. If you make an exceptional loan and fail to return it, the insurance company may reduce the policy’s death benefit by the outstanding loan amount.

Do I have to pay surrender fees?

In most cases, when you claim the cash surrender value of your permanent life insurance policy, you will have to pay surrender charges.

Generally, surrender charges vary between insurance plans and tend to be more expensive for newer policies. These fees are in the range of 10 to 35 percent depending on the duration of the policy.

Surrender charges decrease over time until reduced to zero after a specified time.

Cash surrender value example

Let’s say you own a 12-year-old life insurance policy and a cash value of $7,000. You want to surrender the policy to access the cash value in it. Then your insurance company adjusts for their surrender charge of 20 percent, for example. Subsequently, you will receive $5,600, and the company will earn $1,400 in fees.

How to surrender your policy

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If you want to stop paying premiums and cancel your life insurance policy, you might get a check from your insurer. You can access the cash value of your policy only if you own the policy long enough for it to build up significant cash value.

Also, If you surrender in the first ten years, surrender penalties will probably eat up everything you have accumulated so far. However, if your policy is older and you no longer need life insurance, you can cash in your policy for a payout with no fees at all.

Some insurers even offer modifications to your policy, keeping the death benefits while paying a reduced premium.


Be cautious because your policy will probably lapse if you stop paying premiums without an agreement with your insurer. Always consult your insurance broker first to determine what options your particular policy allows.

Alternatives to surrendering your policy

Several options are available to help you turn the premiums liability into a lump sum of cash. Surrendering any permanent life insurance policy will get you a portion of the policy’s value in exchange for canceling the benefit.

Surrendering the policy is not always the best path to your cash; there may be better options out there for your particular situation.

If you want to keep your policy, you can choose one of the following options.

Withdraw policy’s cash value

In many cases, you can make a direct withdrawal from your cash value and use that money elsewhere as an emergency fund.

Take out a loan

The easiest path to quick money through life policy is to access the cash value by taking out a loan using the policy as collateral. The interest will be charged; however, the rates are significantly lower than you would pay other traditional lenders, especially if you don’t have an excellent credit history.

Sell your policy

Selling your life insurance policy is not much different from selling other valuable assets that will create immediate cash.

If you are an eligible candidate to sell your policy, you might get a bigger payout than with cash surrender value, and this transaction is called a life settlement.

The primary eligibility factors for a life settlement are the original policy’s cost structure and the policyholder’s impairment level. If the policyholder’s actual health condition is more severe and if the original policy’s ratings were higher, a life settlement is probably the most profitable option of all.

Surrender period

Most insurers require policies to be active for a specific term period before accessing your cash value. This period is called the surrender period. On the other hand, you should expect to pay surrender fees if you cancel your policy during the surrender period.

Gain financial independence with Infinite Banking

Infinite Banking is a process of utilizing your whole life insurance to finance your lifestyle without a need to depend on a bank. Learn how to borrow from yourself and gain interest simultaneously with the Infinite Banking Concept.

Instead of borrowing from a bank, you can borrow money against yourself and dictate cash flow while still allowing your policy to earn dividends while using that money elsewhere.

In other words, you will build your wealth while borrowing and repaying the money of your permanent life insurance policy’s cash value. You will become both a creditor and a lender, thus becoming your bank in a sense.

Forget about banking fees and high-interest rates on loans; with Infinite Banking, you will be able to achieve your unique financial goals.

How does Infinite Banking work?

Infinite Banking includes:

  1. Overfunding (with after-tax funds) a high cash value whole life insurance policy from a life insurance company
  2. Accumulation of Cash Value(tax-free) throughout the years you are a policyholder of your insurance policy.
  3. Tax-Free Loans taken out against your policy’s cash value to use for your expenditure.

The goal is to duplicate the Infinite Banking process as much as possible to build significant value for your own bank. Implementing Infinite Banking strategy helps you build wealth using the life insurance policy and better control your finances.

Final thoughts

We hope this article helped you understand the basics of surrender cash value and its alternatives. To accurately determine the cash surrender value of your policy, you can always contact your insurance agent. It’s recommended to have periodic reviews of your policy as it may help you stay on track with your policy’s cash surrender value growth.

To learn how Infinite Banking can help you utilize your policy in the best possible way, we encourage you to sign up for our premium membership! We are looking forward to seeing you at the Wealth Nation community!