What Is the Average Cash Surrender Value of a Life Insurance Policy?

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

(3 minute read)

If you have a life insurance policy that you no longer want or need, you may be wondering what your options are. Depending on the type of policy you have, there are two primary options: surrendering your policy for the cash value or surrender value, or selling your life insurance policy via a life settlement. In this article, we’ll discuss what it means to surrender your life insurance policy for the cash value—including how much money you can expect to receive—and explore life settlements as an alternative option.

Can You Cash Out a Life Insurance Policy Before Death?

Yes, for many types of permanent life insurance policies—including whole, variable, and universal—it is often possible to cash in your life insurance while still alive. Cashing out, in this instance, refers to the process of surrendering your life insurance policy. You will receive the cash surrender value, and in return your policy will be canceled, which means your beneficiaries will no longer receive a death benefit. This assumes that you’ve met any requirements required by your policy, such as having held the policy for a certain length of time. 

But what about the cash surrender value of term life insurance? If you have a term life insurance policy, there typically is not a cash surrender value associated with the policy. Some term life insurance policies may be convertible to permanent policies, which would eventually provide a cash surrender value.

Before you begin looking into cashing out your policy, let’s review some of the common terms you may come across.

What Is the Face Value of a Life Insurance Policy?

The face value, or death benefit, of a life insurance policy refers to the amount of money your beneficiary or beneficiaries will receive from your insurance company at the time of your passing. Assuming you haven’t used any of its cash value or sold a portion of the policy, its face value should be listed on your insurance policy documents.

What Is the Cash Value of a Life Insurance Policy?

Permanent life insurance policies often come with a cash value component, which is essentially a savings account. When you pay your premiums, a portion of the payments will go into a separate account. Depending upon the type of policy you have, the cash value may grow at a fixed rate or it may be invested. You may also have options to take out a portion of your cash value after a certain amount of time.

What Is the Cash Surrender Value of a Life Insurance Policy?

The cash surrender value is the amount of money you will receive in the event that you surrender your policy.  There are two primary types of surrender values, guaranteed and non-guaranteed:

  • Guaranteed surrender values reflect a certain percentage of your premium payments and are typically available after 3 years. The longer you hold your policy, the higher the guaranteed surrender value.
  • Non-guaranteed surrender values reflect any investments or bonuses your policy has earned, as well as premiums. 

Wondering how to calculate the cash surrender value of life insurance? In most instances, you’ll find that the difference between the cash value and the surrender value of your policy is roughly equal to the surrender fees charged by your life insurance company. You can learn more about these fees by reaching out to them. As you’re doing your planning and calculations, it is important to remember that a surrendered life insurance policy does not pay a death benefit to your beneficiaries.

What Is the Average Cash Surrender Value of a Life Insurance Policy?

You might be surprised to find out that the average cash surrender value of a life insurance policy is only $460 for every $100,000 in value. While there are, of course, policyholders who will receive a higher amount than this average, many people find themselves shocked by such a low return.

Fortunately, for those looking for a higher lump sum payment, there’s another option. Selling your life insurance policy via a life settlement often provides much higher returns. In fact, according to the Life Insurance Settlement Association, life settlements typically yield about four to seven times the amount of the cash surrender value. For many policyholders, a life settlement is a way to reclaim more money out of an unwanted or unneeded policy.

Life Settlement Advisors: Experts You Can Trust

Before deciding to surrender your policy, consider all of your financial options. At Life Settlement Advisors, our goal is to educate you about the process of selling a life insurance policy so you can make an informed decision moving forward. Learn more about the process today.

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.

Get in touch with Life Settlement Advisors today to take the first step toward converting your policy into cash.

Leo LaGrotte
Life Settlement Advisors