The value of your death benefit and the amount of remaining cash surrender value are two criteria that determine how much your policy is worth.
The cash value, or surrender value, is a savings component included in some life insurance policies that can accumulate cash value from premium payments. With an added cash value option, your life insurance policy can help contribute to a retirement nest egg or rainy day fund for immediate access to cash. It can also help pay future premium payments on your policy.
If you decide you no longer need your life insurance policy, you can sell your policy in exchange for your cash value, or a lump sum payment.
Some life insurance policies have similar processes to accrue cash value. Your life insurance payments are split into three main categories: policy premium payments, insurance company operating costs and cash value. Each time you make a payment on your policy, your money is disbursed into these categories. The more you pay on your premium and the more interest accrues, the more your cash value grows.
Your cash value increases based on the permanent life insurance policy you buy.
A higher percentage of your payment is contributed to your cash value in the beginning of your policy. This allows for your cash value to increase quickly. However, as you grow older, the majority of your payments are allocated toward your actual insurance.
Though permanent life insurance policies allow policyholders to accrue cash value within their contract term, some policyholders forget to cash out on the money saved. When a policyholder dies, their beneficiaries receive the death benefit, but the remaining cash value is forfeited to the insurance company.
There are a number of ways to make the most of your cash value to avoid losing your added savings:
There are two main types of life insurance policies: term life insurance and cash value life insurance. While both options are meant to provide financial stability upon your death, their main difference is the added savings component. Before pursuing an insurance option, consider your financial needs and the desired amount of coverage.
Term life insurance — also referred to as pure insurance — offers coverage for a designated period of time set between 1 to 30 years. When the contract ends, you will have to renew your policy. If a policyholder dies within the policy period, the beneficiary receives the full death benefit. If the policyholder does not die within that period, the beneficiary receives nothing. Though it is the most affordable insurance option, it does not include a cash value component. You cannot borrow against it or build cash value, but it may still be sold to convert into income.
Cash value life insurance protects your family in the event of your death and serves as an immediate financial resource when necessary.
Cash value insurance — also known as permanent insurance — is an insurance option that follows you throughout the remainder of your life. It includes a savings component that accrues every year and provides you flexibility to use it as necessary. Borrowing against your cash value, however, can reduce the death benefit to your beneficiary.
If you choose to sell your policy before you die, you are entitled to receive the remaining cash value minus any surrender charges. There are three main types of cash value insurance:
Policies maintain their value over time. Policies you own but may have forgotten may still retain some value, along with policies belonging to deceased relatives. In order to find the value, there are a few steps you can take to check the worth:
How much you receive if you decide to sell your policy will vary depending on many factors, including the type of base insurance policy you have.
If you decide that you’d like to cash out on your remaining savings from your life insurance policy, consider selling it in exchange for a full lump sum, or cash value. This option is the most common, allowing you to alleviate larger debt, pay for medical expenses or fund school tuition. Receiving the full cash value — or life settlement — from your insurance policy provides the most flexibility.
Another option is to receive a structured settlement, or a steady income stream of payments, from your cash value after selling your life insurance policy. This allows policyholders to pay for ongoing expenses while adding to their fixed income. This option lacks the flexibility of a full payout, but guarantees some financial stability over a set period of time.
If you are pursuing a life settlement and want to ensure your assets are protected, our trusted partners can help to guide you. Call our hotline to learn more about your options. Our financial literacy advocates can give you more information on our partners who can help you maximize the value your life insurance policy. Let us turn your burden into a financial solution.