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Cash surrender value is selling your life insurance and trading it in for its cash value. Essentially, it's the amount of money that you can withdraw by surrendering your policy to your insurance company and allowing it to lapse. Payments on life insurance premiums with cash-value life insurance policies (including universal life policy, whole-life policy, or variable-universal life policy) are sorted as such:

The insurance company diverts some of that money towards paying for the death benefit protection that the policy provides
Another percentage the insurance company uses to satisfy the various fees and costs of the policy
And the remainder is deposited into the cash value of the account.

You're paying two things here: the life insurance (which benefits your dependents if you expire ) and the cash-value component (your hard-earned money that "grows" over time). Let's take a peek into what that covers.

First, by surrendering your whole-life policy, you agree to accept the entire cash surrender value that the insurer has assigned to you. Universal and whole policies all accrue cash surrender value, which makes them the best choice for surrendering. Some life insurance companies will allow you to surrender your whole-life insurance policy for an equal cash surrender value of any other policy you may hold. Just be sure to check with your life insurance company and ask before surrendering.

Second, cash-value life insurance policies will give you more than just cash surrender value. Some will increase your premiums. This is great if you have expensive health issues or need more coverage, but it can also make the premiums too high.

Second, cash-value life insurance policies will give you more than just cash surrender value. Some will increase your premiums. This is great if you have high health expenses or need more coverage, but it can also make the premiums too high. If you want more than the cash surrender value, you have two options:

The first is that you can get a convertible whole-life policy. A convertible whole-life policy gives you both cash surrender value and dividends. Usually, the cash surrender value is a percentage of the premiums. Still, some companies will pay the premiums and give you a dividend. To receive the dividend, however, you must have a minimum balance.

The other option is a term-life insurance policy. A term-life insurance policy gives you death benefits and cash surrender value. The amount of the death benefit is tied to the percentage of the policy's total face value. Most term policies also offer added features like additional premiums, which will reduce the overall cost.

Lastly, you can get cash value with interest-only premiums. The cash value with interest-only premiums will pay out a small initial amount with a steadily increasing interest rate until the policy has been paid off completely. With a cash-value policy, your premiums will not be impacted by mortality. These policies are great for young people building savings for their retirement or those who need coverage now but don't need full face value.

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