How Is the Cash Surrender Value of Term Life Insurance Calculated?

Did you know you can sell all or a portion of a life insurance policy, even term insurance?

(3 minute read)

At Life Settlement Advisors, we help clients who, for a variety of reasons, are interested in selling their life insurance policy. A lot of the time, our clients who hold life insurance policies for many years see their circumstances change. Perhaps their priorities have changed, and they’d rather spend their dollars on the here-and-now—maybe, for example, they’d rather liquify their assets to pay for a big family vacation, education, or medical bills. Or maybe they just don’t want to keep paying premiums, and are ready to just cash out. 

Whatever the reason, we’re here to help our clients make the best decisions possible. Sometimes that means answering questions about selling vs. surrendering their policy, or helping them locate and use a cash value life insurance calculator.

In this blog, we’re going to be discussing term life insurance, a policy type that guarantees the payout of a stated death benefit if the person covered by the policy loses their life within a specified term, often within the range of 10 to 30 years. Specifically, we’ll get into exactly what your options are for surrendering or selling all, or part, of an unneeded policy, by answering the following questions around term life insurance cash value:

  • What is the cash surrender value of term life insurance?
  • Why should I sell, not surrender, my term life policy?

What Is the Cash Surrender Value of Term Life Insurance?

The short answer to this question is “None.” That being said, it’s definitely worth distinguishing between a pair of terms that may seem similar, but refer to different things: cash value and surrender value. At this point, you might be wondering, “is the cash value the same as the surrender value?” Here’s why that’s not the case:

  • An insurance policy’s cash value is built through the premiums the policyholder pays over the course of coverage. Whole life insurance cash value grows as premiums are paid, and as the sum of paid premiums earns interest over time.
  • That same policy’s surrender value is the specific amount of money the policyholder can receive by terminating their policy or simply cashing out. This value is typically less than the policy’s cash value—the average surrender value of a life insurance policy is $460 for every $100,000 in value (death benefit). Here, you can read a little more about ​​how to calculate the cash surrender value of life insurance.

This brings us to a crucial distinction between whole life and term life insurance policies. While whole life policies have both cash and surrender value, term life policies have no cash or surrender value. With term life, the guaranteed death benefit solely represents a term life policy’s value. In order for the policy to have a cash or surrender value, it would need to first be converted to a whole life or universal life policy. 

That’s not to say the only compelling reason to convert a term life policy is for the cash value and surrender value benefits. There are a number of reasons you might consider this conversion. Maybe when you signed up for your original policy you weren’t able to afford whole life insurance policy premiums, for example.

Why Should I Sell, Not Surrender, My Term Life Policy?

The most important reason to consider selling—rather than outright surrendering—your term life policy is the ability to recoup some value from the premiums you’ve paid over the months or years of coverage. Again, to put it bluntly, there’s no cash surrender value for surrendering a term life policy. 

Think of surrendering a policy as simply saying “I’m done.” You’ll no longer need to deal with the insurance companies or pay any more premiums on the surrendered life insurance policy—the trade-off, though, is that you don’t get to walk away with anything of value.

Selling your policy, however, provides a great option for those who are ready to discontinue their coverage. Whether it’s a whole life or term life policy, selling your policy—in what’s called a life settlement—provides takeaway value. While many life settlement brokers might balk at the prospect of purchasing your term life policy, we just want to help our clients find the best solutions for their past, current, and future investments.

Explore Your Options with Life Settlement Advisors

At LSA, we want to empower our clients to make the best financial decisions possible for their unique circumstances and priorities.

Did you know you can sell all or a portion of a life insurance policy, even term insurance? Selling an unwanted life insurance policy is no different than selling your car, home or any other valuable asset that will create immediate cash. Contact us today to learn more.

I am always happy to answer any and all questions about these life-transforming transactions.

Leo LaGrotte
Life Settlement Advisors

Get in touch with Life Settlement Advisors today to take the first step toward converting your policy into cash.
Life Settlement Advisors
Leo LaGrotte
At Life Settlement Advisors, we strive to be a voice of confidence and assurance for our clients. Our goal is to educate you about the life settlement process so you can make an educated decision about whether it is right for you.