What is Surrender Value?
The surrender value of a life insurance policy is the policy’s cash value minus deductions like surrender fees. In short, it’s the amount of money the policy owner will get paid out from the insurer should they choose to give up their policy.
Surrender value for cash value policies
Not all life insurance policies come with surrender value. If you cancel a term life insurance policy, for example, you can’t expect to get anything back from the insurer.
Most forms of permanent life insurance, however, come with a cash value component, which is essentially a savings account within the policy. When the policy owner cancels their coverage, their surrender rights entitle them to the money that has accumulated in their cash value.
Surrender value doesn’t equal cash value
That’s not to say that policyholders can expect a payout of their full cash value if they decide to cancel their policy. Most life insurance policies come with surrender fees, or charges that will be levied in the event of policy cancellation.
Insurers usually set surrender fees as a percentage of the cash value that decreases over time. At a certain point, most permanent life insurance policy surrender fees climb down to zero.
In other words, if the policy owner cancels their coverage while the surrender fee still applies, they can expect to receive the policy’s cash value minus the applicable surrender fee. If they wait until the surrender fee period has ended, they can receive the full cash value amount.
That assumes that there are no other applicable deductions. If you took out a loan against your cash value and haven’t fully repaid it, for example, your insurer will generally subtract that from your cash value amount when determining your surrender value.