The cash surrender value is the amount of cash your policy is worth in the event you want to terminate it. It is not to be mistake with cash value. Although they sound similar, they are quite different. Cash value has more flexibility. Cash surrender value is money available to you after you lose your death benefit. Therefore, you should only consider this option as a last resort contingency. After all, from the policy perspective, it is truly a final one.
There are three general types of policies: Term Life, Universal Life and Whole Life. Of these only the latter two give you a cash surrender value option. Term life is a simple death benefit policy only. It never offers you a cash surrender value. This is reflected in its low premiums.
Cash Surrender Value in Universal Life Policy
This is probably the type of policy, where cash surrender value can have the most benefit for you. Choosing a universal life policy is the low end option that gives you a death benefit and cash option. Universal policies are a combination of term life and whole life policies. There is very little cash value in them, but that’s what makes them affordable. They are very flexible and provide you with permanent death benefit. A great feature, which sets them apart them from term policies.
Cash in Whole Life Policies
Whole life policies are all about their cash value. Their primary purpose is to provide you with traditional death benefit. However, while providing you with protection, they also help you accumulate cash. They are a long term protection, better yet permanent, with investment value. You cannot expect any money from them in the first years, but in the long run, you’ll reap great benefits. Especially if you invest your money with a mutual insurer.
These policies offer you an option to have your money available in days in the form of a policy loan. This means you can use their cash value without having to terminate the policy. A policy loan only impacts the total death benefit should you pass away before you repay it. The insurer will always pay out the face value, but the unpaid loan will lower the “extra” value on top of the guaranteed death benefit