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Cash Surrender Value of Life Insurance

Cash value is the amount of money you can build up while you pay for certain types of life insurance, like whole life insurance or universal life insurance. On the flip side, cash surrender value is what you’ll receive from your life insurance company when you want to access the funds. Let’s take a closer look at the cash surrender value of life insurance and how it works.

What is the cash value of life insurance?

Cash value is the money that can grow over time with a permanent life policy such as whole life or universal life insurance. If your life insurance involves a cash value component, a portion of your premiums will go toward the cash value balance, which will earn tax-deferred interest. You can then use the balance in a variety of ways once it’s grown large enough, such as borrowing money or getting the cash surrender value if you surrender your policy.

How does cash surrender value work?

Cash surrender value is the money you can receive if you choose to cancel or surrender your life insurance policy. It deducts surrender fees or any funds required to repay loans or premiums that haven’t been paid. Typically, surrender fees range between 10% to 35% of the policy’s cash value and decrease each year.1

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Types of life insurance with cash surrender value

Not all types of life insurance come with a cash surrender value. Here are a few types that do:

Whole life insurance

Whole life insurance is a permanent life policy that offers coverage for your entire life. It has a guaranteed death benefit and cash value component that accumulates interest over time.2 Whole life insurance might make sense if you’re a high earner or have long-term financial obligations.

Universal life insurance

Universal life insurance is a type of flexible permanent life policy. It can allow you to increase or decrease your premium payments.3 If you decide to decrease the amount you spend on premiums, you can expect the difference to be withdrawn from your cash value.

How to calculate your cash surrender value

Fortunately, it’s easy to calculate your cash surrender value. First, add up the total payments you’ve made toward your life insurance policy. Then, subtract the surrender fees your insurance company will charge. You’ll be left with the actual payout you may receive if you terminate or surrender your life insurance.

Alternatives to surrendering your life insurance policy

If you don’t want to cancel your life insurance policy, here are some alternative ways to use its cash value:

Withdraw funds

Typically, you can make a withdrawal from the cash value in your account. If you go this route, however, note that the amount of money you withdraw will be subtracted from your death benefit. This will leave your beneficiaries with less after your death.

Take out a loan

You may take out a life insurance loan that uses your policy as collateral. In the event you still owe money when you pass away, that amount will be deducted from your death benefit.

Pay premiums

If you need some extra funds to make your premium payments, you might be able to withdraw funds from your cash value to help cover them. Just keep in mind that this will also reduce your death benefit.

Should I get the cash surrender value of my life insurance policy?

Whether or not surrendering your policy for the cash surrender value makes sense depends on your unique financial situation and goals. You might want to consider this option if you switch from whole life insurance to term life insurance, you’d like to work with a different insurance company, or you’re in need of fast cash. It might also be the right choice if you get a new job and your new employer offers a free or discounted life insurance policy.

Get a quote for whole life insurance

Hopefully, you’ve learned more about the cash surrender value of life insurance. If you’re looking for life insurance with cash value, Aflac offers whole life insurance plans that can help you and your family meet your financial goals. Chat with an agent today to explore your life insurance options and get a quote.

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