Cash Surrender Value: Definition and Explanation
A cash surrender value is the total payout an insurance company will pay to a policy holder or an annuity contract owner for the sale of a life insurance policy. To calculate your Cash surrender value, you must; add total payments made to an insurance policy and subtract of fees charged by the agency.
When a life insurance policy has outlasted its usefulness, the first step is for a policyholder to consider the best next option, and for universal life insurance and whole life insurance policies that process starts with determining the life insurance policy’s cash surrender value.
To fully understand what the pros and cons of a cash surrender value is – we must first understand how a surrender value is determined.
Calculating Cash Surrender Value
When a policy holder makes insurance premium payments to a whole life or universal life insurance policy, over time, a portion of those payments accumulate as cash value and part of that amount goes to the death benefit of the policy.
For a universal life insurance policy, the longer the universal policy is in effect and the more robust the markets that were selected for a policy’s investment, the larger the cash surrender value will be.
A whole life insurance policy grows at a fixed rate designed to grow the policy to the amount of the death benefit when the policy matures.
A term life insurance policy does not have a cash surrender value.
If you are having trouble determining the cash surrender value of your insurance policy, please contact your policy’s insurance agent; as the cash surrender value is readily available with a simple request.
Further, periodic reviews of your life insurance policy is recommended, and through the review process you can track the growth of the surrender value of your insurance policy.
Terminating a Life Insurance Policy
Some might find that they need to keep their life insurance policy but still obtain some of the cash value that has accrued for a lump sum payment.
In those cases, a policyholder might borrow against the cash value of their life insurance, arrange to pay premium payments using the cash value or even take out part of the cash value while leaving the policy in effect (the second and third options are not recommended for a whole life policy).
If your circumstances have changed so much that the death benefit is no longer needed, you can surrender the policy in order to receive the net cash surrender value.
If a policy has been in place for a decade or more and the policy’s investments have fared well, the cash value will be hit with fewer fees and surrender charges. In this scenario, it might be worthwhile for a policyholder to benefit from that money and stop paying premiums at the same time.
Such a decision, however, should be made only after weighing the other options available for making a profit off of an unwanted policy.
Cash Surrender Value Alternatives
It is crucial for those with life insurance policies to understand the determination and amount of their cash surrender value, but that doesn’t mean that their best path is always surrendering the policy to get their hands on that cash. The more lucrative option, in many cases, is to pursue the sale of the policy through a life settlement.
if you are a candidate for a life settlement you could yield a payout that is significantly higher than the cash surrender value of the life insurance.
The two chief variables that determine eligibility for a life settlement are the impairment level of the policyholder and the cost structure of the original policy.
The more serious the health condition, in inverse relation to a more favorable rating when the policy was issued, creates the best situation for a profitable life settlement.
For example, if a universal life policy was issued at preferred-plus and the policy holder becomes significantly more impaired than predicted, a life settlement could yield sums up to four times the stated cash surrender value.
Despite the possibility of a significantly larger payoff, many seniors go with a surrender anyway and take the cash value, because they have never been informed about the potential advantages of a life settlement.
Every policyholder should be informed about the value of their policy and the options before them when the insurance is no longer needed. Magna Life Settlements is the most trusted life settlement representative that also works with insurance agents looking to present the best possible scenario for their clients.
Seniors interested in learning more about the life settlements or viatical settlements, can use our life settlement calculator to determine their next steps. With the right information, insurance policies that have become a liability can benefit policyholders and help offset costly retirement expenses.