life insurance cash surrender value

life insurance cash surrender value

Cash Value of Life Insurance Policy

Put Your Life Insurance to Work

If you are considering permanent life insurance – such as whole life, universal life, or variable life insurance – you probably know that these types of policies provide both death benefits and cash value accumulation. You can use the cash value for many different needs, including your living expenses in retirement.

  • Pay your policy premium
  • Borrow from the cash value to pay large expenses, at a lower rate than banks offer
  • Structure an investment portfolio that maintains and accumulates wealth
  • Use the cash value for expenses in retirement

Cash Value Life Insurance Definition

Cash value life insurance is a type of permanent insurance policy consisting of a “death benefit,” which is a standard part of all life insurance policies, as well as a cash value accumulation feature. Whole life, universal life, and variable life insurance are the three primary types of cash value life insurance.

When you pay your premium, a portion of that payment is allocated towards the cash value. The life insurance company invests the money into a conservative-yield form of investment. The cash value grows over time as you continue to pay your premium and through the interest you earn.

The life insurance cash value is the amount of money you have built up through your premium and investment interest for the length of time you have owned the policy.

How Does Cash Value Life Insurance Work?

When you pay your insurance premium for a permanent life insurance policy, the money is generally allocated in three portions:

  1. Payment for the face value of the insurance policy or death benefits, which your beneficiary or beneficiaries will receive after you pass away
  2. Payment for the insurer’s cost for administering the policy
  3. Payment toward the cash value, which is subsequently invested by the life insurance company

The cash value builds from a combination of each premium payment you make and the interest earned from the investments made by the life insurance company.

The cash value generally grows slowly in the first few years of the policy then experiences more significant growth later. The cash value accumulation then slows again as the policy holder ages and more of the premium is applied to the death benefits.

Life Insurance Cash Value Growth

The life insurance cash value growth is dependent on both the premium and how well the life insurance company’s investments perform. Some forms of permanent life insurance policies offer a guaranteed minimum rate of return. You’ll benefit when the investments perform well; you earn a higher return on the investments, and can be protected if the policy has a guaranteed rate of interest when economic times are slower. Additionally, some insurance companies will also pay a dividend if fewer life insurance policies are paid out in a given year.

The rate of return on the investments made by any life insurance company varies for a variety of reasons:

  • Some investment portfolios perform better than others
  • The strength of the investment market fluctuates
  • The account managers handling the investment portfolios have varying rates of success

The overall return rate of investment on a policy that has been in place long term can be 4.97% or higher on an annual average for the life of the policy. When you are comparing life insurance companies and policies, be sure to work with a knowledgeable independent agent who can assess how well various permanent life insurance companies have performed.

You might be wondering if and when you have to pay income tax on the cash value portion of your policy. This is how the tax situation works.

  • Whole life non-participating policy and universal life insurance policy: As long as cash value continues to grow in an active policy, the cash value is not taxable until one of the following occurs:
    • You cancel or “surrender” the policy
    • You transfer the life insurance policy, such as when you assign or sell the policy
    • The policy is no longer considered a life insurance contract by the IRS
  • Participating whole life policy: The same applies to these policies with above described conditions, but there is a slight difference when it comes to the payment of the dividends on a “participating” whole life insurance policy. In a participating whole life policy, dividends are paid out to the policy holder and are considered to be a “return of premium.” The policy holder has four choices to choose from in how to use the dividends:
    1. Buy more coverage
    2. Use the dividends to reduce the future amount of your premiums
    3. Reinvest the dividends
    4. Receive the dividends in cash

These dividends are not taxable until or unless the dividends you receive exceed the total amount of premiums paid on your particular policy. Any dividends you receive that exceed the total amount of premiums paid on your policy are considered taxable. The excess dividends will be taxed regardless of how you use them.

The cash value and the cash surrender value are inherently the same. The difference between the cash and the surrender value is that if you surrender your policy (for example, if you choose to cancel and cash out the life insurance policy), you will receive the cash value that has accumulated less any applicable surrender charges; these charges are pre-determined by the life insurance company, and are stipulated in your policy contract.

Note that there is a “surrender period,” which is the period of time that a policyholder must wait before it is possible to receive the cash value of the policy upon canceling. If the policyholder cancels the policy before the end of the surrender period, it is not likely the policyholder will receive any amount of the cash value because these costs are incurred by the insurance company to set up the policy.

Borrowing Against Your Life Insurance Cash Value

After the surrender period ends, you can typically take out a loan against a portion of the available cash value. Note that you should only do so for an express purpose, and that there are several things to consider:

  • This loan can be taken out without having to pay taxes on it
  • You are not required to repay this loan back to the insurance company
  • The insurance company will charge the interest rate on the outstanding loan
  • Both the interest the company is charging for the loan and the amount of cash value you borrowed will be deducted off the death benefits if you die while the policy is still in force, unless you have repaid the loan

A life insurance cash value policy can help you build up a substantial savings over time and can be especially advantageous if you aren’t very investment savvy or have difficulty saving money for your retirement.

There are many different versions of these types of policies and they vary in how they are structured. You are best advised to contact a local independent agent in the Trusted Choice network who can provide unbiased information about cash value life insurance policies versus term life insurance policies. One of these agents, right in your area, can help to evaluate your financial needs and goals and answer your questions about various life insurance options.

Find an agent today to learn more about permanent life insurance cash value policies and get the coverage you need.

cash surrender value of life insurance

abbrev.: CSVLI cash surrender value of life insurance наличная остаточная стоимость страхования жизни: наличная сумма, которую страховая компания обязана вернуть владельцу полиса при аннулировании или использовании последнего; фактическая ценность страхового полиса для застрахованного человека; см. term insurance.

Англо-русский экономический словарь .

Смотреть что такое "cash surrender value of life insurance" в других словарях:

cash surrender value — cash sur·ren·der value n: the amount of money an insurer will pay the insured upon surrender of a life insurance policy usu. calculated as the reserve held by the insurer against the policy less a charge for surrender and any outstanding… … Law dictionary

cash surrender value — ( CSV) The amount of cash that can be obtained by the policy owner upon cancellation of a whole life insurance policy. CSV may also be borrowed by the policy owner. Only certain kinds of life insurance policies have cash surrender values.… … Financial and business terms

Cash Surrender Value — The sum of money an insurance company will pay to the policyholder or annuity holder in the event his or her policy is voluntarily terminated before its maturity or the insured event occurs. This cash value is the savings component of most… … Investment dictionary

cash surrender value — The cash value of a life insur ance policy as ascertainable by established rules, where the policy has been abandoned and given up for cancellation to the insurer by the person having a contractual right to do so. 29 Am J Rev ed Ins § 620; the… … Ballentine's law dictionary

Cash surrender value — The cash surrender value is the amount of cash a policyholder receives from the life insurance company if he or she actually terminates (surrenders) a life insurance policy before it becomes payable by death or maturity. This amount is net of any … Wikipedia

cash surrender value — noun the amount that the insurance company will pay on a given life insurance policy if the policy is cancelled prior to the death of the insured • Hypernyms: ↑sum, ↑sum of money, ↑amount, ↑amount of money * * * cash surrender value, the amount… … Useful english dictionary

value of life insurance policy — For inheritance tax purposes, its face value, less a proper rebate for the period during which payment may be deferred. Anne: 73 ALR2d 232. See cash surrender value … Ballentine's law dictionary

Cash-surrender value — An amount the insurance company will pay if the policyholder ends a whole life insurance policy. The New York Times Financial Glossary … Financial and business terms

cash-surrender value — The amount an insurance company will pay if the policyholder tenders or cashes in a whole life insurance policy. Bloomberg Financial Dictionary … Financial and business terms

life insurance — n: insurance providing for the payment of money to a designated beneficiary upon the death of the insured see also endowment insurance ordinary life insurance: whole life insurance in this entry straight life insurance … Law dictionary

surrender value — n: cash surrender value Merriam Webster’s Dictionary of Law. Merriam Webster. 1996. surrender value … Law dictionary

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A surrender is a full cancellation of a life insurance policy. You are allowed to surrender your policy at any time. A surrender does not affect your credit score, and a surrender will not affect your ability to get a new life insurance policy in the future (but changes in health can). There may be fees associated with your surrender, these are known as surrender charges. These are taken from the cash value (if any). A term life insurance policy does not have any surrender fees.

Sometimes after owning life insurance for a number of years, people have changes in their lives. Sometimes people used to have dependents that no longer require support. Sometimes things like divorce, death, financial windfall, or even a greater need for cash in hand contribute to people deciding they no longer need life insurance coverage. The good news is that permanent forms of life insurance will build cash value over time as long as they are funded properly, and upon surrender the policy owner gets to access these funds. The process to surrender a life insurance policy is relatively straightforward and simple, but if a surrender needs to happen fast it is best to understand the procedures so there are no hiccups.

The big advantage of surrendering a life insurance policy is the access to the cash value. When a policy is surrendered, it does not merely cease premium payments, it also releases all the saved value to the client (assuming they have not withdrawn or loaned it from the policy already). Generally speaking, the older a policy is and the longer it has been active, the higher the cash value will be. People often surrender their life insurance contracts as one of the first ways to pay unexpected expenses such as house repairs or to get through a period of unemployment.

Superfluous Coverage

People also surrender life insurance contracts because sometimes they might not need the coverage anymore. Many people have owned whole life insurance policies for over 20 years. During this period of time many life changes may have taken place. Children may have grown and are no longer dependent on their parents for support, marriages may end in divorce and life insurance is not needed to protect a spouse, companies may be sold and key man insurance is no longer needed, or a beneficiary may predecease the insured and the coverage may be unnecessary.

Cheaper Coverage- Especially From Better Health

Sometimes an insured person may find less expensive coverage from another company. This may be because they never comparison shopped for insurance in the first place and ended up paying more than they should have, or it may be for other health related changes. If the insured person goes through a major shift in health in a positive direction such as weight loss, a new policy may actually be less expensive than the old. While people can apply for a better health rating with an existing policy, they may not be granted the better rating. A new policy may give the insured the opportunity to have the same coverage for less expense.

Surrendering a life insurance policy is quick and easy in most cases. A life insurance company is limited by law to how long they can legally hold onto a client’s money after a surrender request is received. To surrender a policy, simply follow these procedures.

  1. Contact your insurance provider and inform them of your intent to surrender. Request a surrender form and ask if a letter of instruction will be sufficient to surrender the policy.
  2. Fill in the surrender form exactly as required, or write the letter of instruction.
  3. Send the surrender form to the company by a manner that can be tracked such as priority mail or registered mail.
  4. Call to confirm the company received the request after the tracking indicates that they have.
  5. Receive your funds in a short time.

Generally speaking, any gain in your policy will be taxed as income, at your marginal income rate of taxation. The amount of money you put into your life insurance policy, known as the cost basis, is not subject to taxation because after-tax dollars were used to fund the policy. Policy owners should always consult with a qualified tax adviser if they are concerned about possible taxation upon surrender of a life insurance policy.

Some life insurance policies, especially variable universal and universal life insurance policies, may have surrender charges for the first 10-15 years of the policy. A surrender charge is a charge from the cash value imposed by the insurance company for surrendering the contract early or withdrawing money early. Surrender charges can be very significant, especially in the early years of a policy. Always be aware of any possible surrender charges on your life insurance policy before you purchase the policy, and before you withdraw any money or surrender the contract in full.

While surrendering a life insurance contract may cost your beneficiaries in lost death benefits, sometimes surrendering a life insurance contract is unavoidable or advantageous for the owner. It is a comfort to many to know that a readily available source of money is so easily accessible.

What Is Cash Surrender Value Of Life Insurance?

Life insurance policies have specific terms that are important to understand — cash surrender is one of those terms. This value represents the total amount of dollars that have been accumulated in a life insurance policy over a specific period of time. As a policyholder, you can access this dollar amount before your policy ends.

Understanding Cash Surrender Value

Cash surrender value is only offered when you enroll in a permanent life insurance policy. These policies include universal life and whole life. The advantage of using one of these policies is that they offer a death benefit as well as a premium savings component. You don’t have that option if you choose a term life policy — there’s no payout available before the policy matures. While having the ability to access the cash surrender value before maturity is an advantage, you can also expect to pay a higher premium if you choose a universal life or whole life policy.

Watch Your Cash Value Grow

Initially, the cash surrender value of your policy will be low. The insurance company that you use will want to stay profitable by not paying out too much during the beginning timeline of your policy. However, as time passes, the cash surrender value of your whole life or universal life policy will begin to increase. At that point, you usually have a few options:

– Access your surrender value and terminate your policy

– Take a loan out against your surrender value and keep your policy active

– Utilize a portion of your surrender value and keep your policy active

Life insurance policies will often offer different options. With many of these policies, you can usually take out a portion of your surrender value and still keep your policy active — be sure to check the terms before you fill out an application to see if this is possible. Some insurance companies will automatically terminate your policy when your surrender value is accessed. Another option that life insurance companies offer is the ability to just take out a loan. You can use the accumulated cash that you have built up as collateral.

Tax Advantage Of Cash Surrender Value

If you ever need some extra money for an emergency or worthwhile project like building a new deck for your home or renovating a room, you can take a loan out against the value of your cash surrender if you have a whole life or universal life policy that contains this option. You will avoid a credit check and, it’s tax-free if you follow a few guidelines. Each month that you pay a premium, you’ll build the value of your cash surrender amount. If you ever decide to take out a loan that is less than the amount you have paid in premiums, you will not have to pay any taxes on the amount that you receive. As an example, if you’ve paid $15,000 in premiums and want to obtain a loan for $15,000, you won’t pay any taxes on that amount.

If you do decide to withdraw cash from your whole life or universal life policy before it matures, it may be wise to talk to your accountant to verify the tax implications.

The cash surrender value is the sum of money an insurance company pays to a policyholder or an annuity contract owner in the event that his or her policy is voluntarily terminated before its maturity or an insured event occurs. This cash value is the savings component of most permanent life insurance policies, particularly whole life insurance policies. It is also known as "cash value," "surrender value", and "policyholder's equity."

Variable Life Insurance Policy

BREAKING DOWN 'Cash Surrender Value'

Cash surrender value applies to the savings element of whole life insurance policies payable before death. However, during the early years of a whole life insurance policy, the savings portion brings very little return compared to the premiums paid. Cash surrender value is the accumulated portion of a permanent life insurance policy's cash value that is available to the policyholder upon surrender of the policy. Depending on the age of the policy, the cash surrender value could be less than the actual cash value. In the early years of a policy, life insurance companies can deduct fees upon cash surrender. Depending on the type of policy, the cash value is available to the policyholder during his lifetime. It is important to note that surrendering a portion of the cash value reduces the death benefit.

The cash surrender value of an annuity is equal to the total contributions and accumulated earnings, less prior withdrawals and outstanding loans. Depending on the age of the annuity, charges may apply to partial and full surrenders. Taxes are deferred until surrender, at which an additional premature withdrawal penalty may apply depending on the age of the annuitant.

Accessing Cash Surrender Values

In most whole life insurance plans, the cash value is guaranteed, but it can only be surrendered when the policy is canceled. Policyholders may borrow or withdraw a portion of their cash value for current use. A policy's cash value may be used as collateral for low-interest policy loans. If not repaid, the policy's death benefit is reduced by the outstanding loan amount. Loans are tax-free unless the policy is surrendered, which makes outstanding loans taxable to the extent they represent cash value earnings.

In universal life insurance plans, the cash value is not guaranteed. However, after the first year, it can be partially surrendered. Universal life policies typically include a surrender period during which cash values can be surrendered, but a surrender charge of up to 10% may be applied. When the surrender period ends, usually after seven to 10 years, there is no surrender charge. Policyholders are responsible for the taxes on portions of the surrendered cash values that represent cash value earnings.

In either case, sufficient cash value must remain inside the policy to support the death benefit. With whole life plans, loans are not considered cash surrenders; so the level of cash value is not affected. With universal life policies, cash values are not guaranteed. If cash value growth falls below the minimum level of growth needed to sustain the death benefit, the policyholder is required to put enough money back into the policy to prevent it from lapsing.

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