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Cash Surrender Value of Insurance: How Does it Work?

By Alfred Alonso·July 12, 2023·5 Minute Read

In this Article

As you’ve probably learned by now, there are several life insurance options to choose from—each with unique features. One differentiator is that some life insurance policies build cash value and others do not.

If you’re thinking about purchasing a permanent life insurance policy with a cash value component, it is a good idea to first get a handle on the concepts of cash value and cash surrender value of life insurance.

What is Cash Value on Life Insurance?

Whole life insurance and universal life insurance are types of permanent insurance. 

If you have permanent life insurance, you may be able to build cash value on your policy. A “cash value” simply means that the policy has value prior to the time that the insured dies. The insurance company specifies how the cash value accumulates over time and the details are included in your policy. Generally, the more premiums that you pay, the more cash value that accumulates.  

How Does Cash Surrender Value Work?

As the cash value of the policy grows over time, you have options for how you can access this value. One option is to withdraw part of the cash value or borrow against it for unexpected life expenses. You can also choose to surrender the policy for the entire cash value, but keep in mind this means that there will no longer be a payment to your beneficiaries.  

What is the Cash Surrender Value of Life Insurance? 

It may seem intuitive to think that a life insurance policy's cash value and cash surrender value are the same amounts, but they are not. If you surrender your permanent life insurance policy in the early years of the policy there are fees involved, and they will be deducted from your cash value before you receive it.

Which Life Insurance Policies Have Cash Surrender Value?

Most types of permanent life insurance coverage feature a cash value component. If you’re looking for a cash surrender value life insurance policy, you might consider one of these options:

  • Whole life insurance: Most whole life insurance policies have a fixed schedule of premiums that are defined by the insurance company. The insurance policy specifies how the cash values will emerge over time given the premiums that will be paid. As long as you pay the premiums, the policy will stay in effect and your beneficiaries will receive a payment when the insured dies. If you were to cancel your whole life policy and choose to receive the cash surrender value, then your policy would no longer exist and no payment would be made to your beneficiaries..
  • Universal life insurance: A universal life policy can also provide permanent life insurance coverage, but with universal life insurance, the policy’s premium and death benefit are flexible. This means that you have the ability to adjust the premium payments and death benefit over time within the limits specified in your policy. As these items are adjusted, the cash value will be adjusted too, so the values are not known in advance. Furthermore, the insurance company has the ability to adjust aspects of the policy (such as the interest rate credit) that can further contribute to the variability of cash values.

How is Cash Surrender Value Determined?

The cash surrender value of your policy depends on the type of life insurance you have—but in general, the cash value is impacted by how long you have had your policy and the level of the premium payments. 

Let’s break down the different ways whole life policies and universal policies can grow cash value.

Whole Life Insurance Cash Value

If you have a whole life insurance policy, the growth in cash value grows is determined by the insurance company when you purchase the policy and these values are basically set for as long as you own the policy. This means it's a good idea to take time to shop around for whole life insurance, and give yourself time to compare options.

Universal Life Insurance Cash Value

For universal life insurance policies, the values are much more dynamic and will depend on a number of items that aren’t known when the policy is purchased. For example, the calculation of the cash value will typically depend on an interest rate and a monthly deduction that are defined by the company. Since these items are different for each company, it’s important to compare options and be comfortable with the policy you choose.

Who Should Get a Cash Surrender Value Life Insurance Policy?

When it comes to financial decisions, consider consulting with an insurance agent or financial advisor for guidance. Whole life insurance offers permanent coverage and the opportunity to grow tax-deferred cash value over time, which could come in handy for retirement or future expenses. 

However, these added features come at a higher price. Permanent life insurance is more expensive than term life insurance (when comparing policies with the same death benefit).

While those larger premiums might make sense today, will they still work for you a few years down the road? Consider the big picture and your future when deciding what type of life insurance is right for you.

Can Life Insurance Be Simple?

If you come to the conclusion that you want straightforward coverage with budget-friendly monthly premiums, consider term life insurance. Bestow makes applying for no-medical exam term life insurance beyond easy. You can do it online in minutes, and most get an instant decision. No hoops, no headaches. Just you, a short questionnaire, and a couple of clicks are all it takes to determine your eligibility.

Forbes - Ranked #1 “Best Life Insurance Company” in the U.S. by thousands of real customers. No medical exams required. Get a quote. Upon approval, you can purchase up to $1.5 million of coverage for a term of up to thirty years. The best part — it’s probably way more affordable than you think. Get a free, nearly instant quote today. If you have any questions, a non-commissioned Bestow agent is available to chat online, on the phone (800-835-8803), or via email

Interested in finding out more about life insurance with cash value? Connect with a friendly agent at eFinancial.com.

Key Takeaways

  • Permanent life insurance policies last your entire lifetime (as long as you make the premium payments) and can build cash value.
  • If you decide to surrender your permanent insurance, you can receive the cash surrender value of the life insurance policy.
  • A cash surrender value life insurance policy can be a great option for those looking to build value on their life insurance, but premiums are considerably higher than term life insurance. 
  • If you’re looking for simple coverage without a cash value component or want to pay lower premiums, consider looking into term life insurance.