Cash Value vs. Surrender Value: What’s the difference?

Learn about the difference between surrender value and cash value with the help of SelectQuote

There are many terms you’ll come across when shopping for life insurance. For example, if you’re exploring permanent life insurance or whole life insurance options, you’ll likely see the terms ‘cash value’ and ‘surrender value.’ Here’s what you need to know about cash value and surrender value as they pertain to life insurance and the difference between the two. 

Cash Value

The cash value of a life insurance policy, also known as the policy value, is the interest-earning cash component of a permanent life insurance policy, such as universal or whole life. The policyholder may be able to access the cash value in order to pay premiums, through a policy loan (which will accrue interest), or by surrendering the policy. 

The cash value component is separate from the death benefit and is one of the main benefits that come with a permanent life insurance policy. Not only can you borrow from the cash value, but it also accrues tax-deferred interest—giving you an extra financial cushion along with lifelong coverage.

Surrender Value

The surrender value of a life insurance policy is the actual sum of money you’d receive if you tried to access the cash value of your policy. The surrender fee, also known as the surrender charge, is the charge collected upon the cancellation of a life insurance policy. The surrender fee reduces the value of your surrender value, but is only applicable if a cash value exists. There is no surrender fee if there is no existing cash value. The surrender value and surrender fee can fluctuate over the life of the policy. 

Typically, you can avoid the surrender fee if you notify your insurance carrier of your cancellation in advance. After a certain period of time, which is designated when you purchase your policy, the surrender charges will no longer be in effect. The process in which you can access your cash surrender value depends on your policy and carrier, but many require you to cancel your policy before you are able to access the cash value.

Difference Between Surrender Value vs. Cash Value

Generally, the difference between cash value and surrender value is the difference between the charges associated with an early termination of the policy. If a policyholder cancels before the end of the surrender period, the policyholder likely won’t receive any of the cash value amount. 

How to Calculate Cash Value of Life Insurance

When you make payments to your permanent life insurance policy over time, a portion of those payments go towards the cash value of your policy. You can get an estimate of the cash value of your life insurance policy by adding the total payments made to the insurance policy and subtracting the surrender fees associated with your carrier. 

Explore Whole Life Insurance with SelectQuote

If you’re interested in a life insurance policy with a cash value, whole life insurance is a good option for lifelong coverage. Whether you think you’d be interested in whole life insurance or are looking to consider all your options, we can help you through the process of figuring out what policy might be best for your lifestyle and budget.

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