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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your premium payments.3 If you decide to decrease the amount you spend on premiums, you can expect the difference to be withdrawn from your cash value.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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Disclaimer
1 Bankrate - What is Cash Surrender Value? Updated October 12, 2022. https://www.bankrate.com/insurance/life-insurance/cash-surrender-value/#surrender-fees-and-waiting-period. Accessed March 28, 2023.
2 Investopedia - Whole Life Insurance Definition: How It Works, with Examples. Updated September 7, 2022. https://www.investopedia.com/terms/w/wholelife.asp. Accessed March 28, 2023.
3 Nerdwallet - What is Universal Life Insurance? Pros, Cons, and Cost. Updated January 10, 2023. https://www.nerdwallet.com/article/insurance/universal-life-insurance. Accessed March 28, 2023.
In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68100-A68400. In New York, NY68100-NY68400.
Coverage may not be available in all states. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations and exclusions. For complete details, including availability and costs, please contact your local Aflac agent.
The content herein is provided for general informational purposes and is not provided as tax, legal, health or financial advice for any person or for any specific situation. Employers, employees and other individuals should contact their own advisers about their situations.
Aflac insurance coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, coverage underwritten by American Family Life Assurance Company of New York.
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