What is Cash Surrender Value and How Does it Work?

February 25, 20248 min read
What is Cash Surrender Value and How Does it Work?
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Key Takeaways 

  • The cash surrender should not be confused with the policy’s cash value, which is the amount of money accumulated in the policy’s cash account. 
  • In universal life and whole insurance policies, cash value grows on a tax-deferred basis. 
  • Unlike term life insurance, which is usually less expensive but only lasts for a certain period, permanent life grows in value. 

In addition to its death benefit protection, permanent life insurance can also be used to build wealth. Such policies possess cash value that does grow slowly in the early years but speeds up as values compound with tax-deferred interest.

However, there are cases in which policy holders seek to wholly “surrender” their insurance policy. That is, they seek to cash it in. What happens then? How much is the policy worth?

Those questions and more are answered below. Here is, what is cash surrender value and how does it work?

What is Cash Surrender Value?

If someone terminates their permanent life insurance policy before it is mature, the amount of funds they will receive is called the cash surrender.

The cash surrender should not be confused with the policy’s cash value, which is the amount of money accumulated in the policy’s cash account before fees or charges.

What Happens When You Surrender a Policy?

Note that in universal life and whole insurance policies, cash value grows on a tax-deferred basis. Once cash value is withdrawn or the policy is surrendered, though, taxes may be owed. The determinant is whether more cash is received in surrender value than the total amount paid into the policy.

Typically, cash surrenders are paid in a lump sum. Some policies call for payments over time. Such details will be in the policy contract.

What Policies Have a Cash Surrender Value?

Unlike term life insurance, which is usually less expensive but only lasts for a certain period, permanent life grows in value. There are a number of forms of permanent life, the most well-known being whole life and universal life:

  • Whole life. With whole life, which has both a guaranteed cash value and guaranteed premium, the same amount is paid monthly throughout the policy’s life. Further, the insurance company guarantees the cash value’s growth rate. Dividends may even be earned if the policy is written by a mutual company. If that is the case, it can help the cash value grow.
  • Universal life. It does not have the guarantees whole life offers but universal is usually less expensive than whole life. Current interest rates dictate both the cash surrender value and cash value amounts. Such rates will fluctuate during the policy’s life. With Universal life policies, the holder may increase or decrease their premium payments up to a certain point.  
  • Variable Life. With this kind of policy, the holder can invest the cash value in sub accounts that function like mutual funds. While the cash value and cash surrender value have more growth prospects, they could also decrease markedly. Drops are due to either changes in insurance costs or subpar market performance.
  • Indexed universal life. The cash value of these policies are linked to an index such as the S&P 500. Thus, based on the index’s performance, the cash value will go up or down. Such policies usually possess minimum guaranteed returns and a limit on maximum returns.

How to Calculate Your Cash Surrender Value?

With whole life, the cash surrender value is the policy’s guaranteed cash value in addition to the value of any accumulated dividends.

The surrender value in universal life is the policy’s current cash value minus surrender charges or fees. With time — usually 10-15 years — the fees usually disappear.

For example, say a variable universal life insurance policy is taken out for $100,000. If payments are made for five years, a cash value of $10,000 will be accrued. The surrender charge, though, will cost 10% of the cash value. Thus, charges will come to $1,000, and the cash surrender will yield $9,000.

The life insurance company or a financial professional will be able to provide the policy’s current cash surrender value, which will also help for tax planning purposes.

How Does Cash Surrender Differ from Cash Value?

Cash value equals the amount built up in a policy’s cash value, including compound interest. Meanwhile, the surrender value is the cash value less any cash-in fees. The surrender charge can start as high as 35% of the policy’s cash value.

Cash Surrender Value for Universal and Variable Life

There is typically a surrender period for variable life insurance, universal variable life, and universal life insurance. If, during this period, the policy is canceled, a surrender charge of as much as 35% of the cash value balance may be owed.

The amount will be deducted from the cash value balance and the policyholder will get the remainder for their surrender value. After about 10-15 years, when the surrender period usually ends, there is no surrender charge.

Why Should One Surrender Their Policy?

Deciding whether to surrender a life insurance policy is more than a notion, as it affects one’s death benefit. Still, there are some instances in which a surrender could make sense.

For example, a large amount of money may be needed for, say, home repairs, major medical expenses, or to erase debt. Or perhaps more funds are needed for retirement or to cover an emergency.

Someone may want to surrender because life insurance is no longer needed, as insurance needs can change over time. Perhaps the children are now adults, and the mortgage is paid off. In such cases, loved ones may not need a death benefit.

Alternatives to Surrendering Your Policy

Note that surrendering a life insurance policy means losing protection. Also, there may be fees and the loss of some cash value.

However, if access to cash value is necessary, or premiums have become unaffordable, there are alternatives to surrendering: 

  • Partial withdrawal. It is usually permissible to make a cash withdrawal without any tax bill if the amount is less than what is paid into the policy. Understand, though, that depending on the policy’s cash value, the death benefit will likely drop. Moreover, that drop may exceed the amount withdrawn. It depends on the policy’s terms.
  • Cash value loan. While the amount varies, it is usually possible to borrow money against the policy. Rather than from the policy, the money comes from the insurer and the policy serves as collateral. While there will be interest payments, the rate will usually be lower than most bank loans. Also, there is no loan application required, and the interest rate is not dependent on credit ratings. If the loan is not repaid, the balance will usually be subtracted from the death benefit. 
  • Cash value to cover premiums. Money in cash value can usually be employed to pay a portion of or all premiums, rendering it easier to continue coverage. This may be a viable choice for older policyholders who wish to put retirement income toward living expenses but still wish to maintain coverage. Note, though, that should the policy’s cash value drop too much, the policy could lapse.

What are Additional Ways to Save?

There are other ways to save in conjunction with a life insurance plan, including through savings accounts and pension plans.

Another way to save is by investing, specifically through an individual retirement account (IRA) such as the one Yieldstreet offers. The leading alternative investment platform can boost retirement savings while offering tax advantages.

In fact, a way to optimize the Golden Years is by adding alternatives to retirement holdings. Not too long ago, such a strategy was generally not that doable, owing to its complexity and the high fees involved.

Fast forward to now with Yieldstreet’s IRA offering, which allows investors to easily utilize private-market alternatives to diversify their retirement portfolio. Assets in such a tax-favored account cut across a wide variety of classes, including art and real estate.

Yieldstreet’s program supports traditional IRA’s as well as SEP, Roth, and SIMPLE individual retirement accounts, in addition to 401(k) accounts

Ultimately, the goal is to render retirement holdings less dependent upon inherently volatile public markets — while taking advantage of prospects for greater long-term returns.

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Alternative Investments and Portfolio Diversification 

Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

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Learn more about the ways Yieldstreet can help diversify and grow portfolios.


A life insurance policy is an integral part of financial and retirement planning. If need be, it also can be surrendered — cashed in. Before such a need arises, however, it is wise to learn the policy’s value and how it is paid out. A conversation with the agent or life insurance company can help with specifics.

Remember that those who have a retirement account such as an IRA can add alternative assets to their positions, diversifying portfolios and prospectively helping returns.

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

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