Annuity.org partners with outside experts to ensure we are providing accurate financial content.
These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.
Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.
Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.
What Is Cash Value?
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.
Accumulating Cash Value
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.
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.
Accessing Cash Value
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.
- Increase your death benefit with the remaining cash value.
- Use your savings to pay off the remainder of your premium payments.
- Take out a loan for your immediate needs. However, any money borrowed will have to be paid back with interest to maintain the full death benefit.
- Add your remaining savings to your retirement fund.
- If you no longer need your policy, sell it in exchange for a life settlement in lump sum.
Cash Value Life Insurance vs. Term Life Insurance
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
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
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.
- Universal Life
- A flexible cash value insurance option, universal life insurance allows policyholders the ability to alter their premium and savings payments as their circumstances change. It also allows for policyholders to use the interest accrued from their cash value to pay for premium payments.
- Variable Life Insurance
- This option is also flexible, but allows a portion of the cash value to be invested in stocks or mutual funds. If it accrues interest, policyholders will have a greater rate of return. They could also lose money if the investment performs poorly.
- Whole Life
- This is a permanent life insurance option with a fixed rate of return. The amount you pay on the death benefit and cash value will remain the same through the policy period.
How to Check Your Policy’s Worth
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.
- Contact the Issuing Company
- Upon finding the policy, locate the policy number and contact the issuing company. They may ask for additional documentation to confirm ownership of the policy or your relation to the deceased policy owner as a beneficiary.
- Determine the Insurance Policy Type
- If the policy was a term life contract, you may not have access to a death benefit if you’ve outlived the contract or if the former owner died after the policy term. If the policy is a cash value contract, you may have access to the cash value or death benefit.
- Is the Policy Active?
- Discover whether or not the policy is still effective and if premium payments are still owed. If so, the remaining cash value may be used to pay the balance.
- Cash Out
- If the policy is still effective and if you are eligible to receive a payout, determine whether or not you want to apply for a life settlement to receive the cash benefits or if you’d prefer to maintain the policy. You can also borrow against the cash value.
Receiving Your Cash Value
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.
4 Cited Research Articles
Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.
- 360 Degrees of Financial Literacy. (n.d.). Term vs. Cash Value Life Insurance. Retrieved from https://www.360financialliteracy.org/Topics/Spending-Saving/Insurance/Life-Insurance-Understand-Your-Choices
- Decker, F. (n.d.). How Do I Find Out If an Old Life Insurance Policy Is Worth Anything? Retrieved from https://budgeting.thenest.com/out-old-life-insurance-policy-worth-anything-25855.html
- InsuranceQnA. (n.d.). How do I check on the worth of an old life insurance policy? Retrieved from http://www.insuranceqna.com/life-insurance/check-old-life-insurance-policy-worth.html
- Marquand, B. (2017, February 27). Cash Value Life Insurance: Is It Right for You? - NerdWallet. Retrieved from https://www.nerdwallet.com/blog/insurance/should-you-consider-cash-value-life-insurance/