Term Life Insurance Articles
Cash Surrender Value And When It Comes Into Effect On A Life Insurance Policy
2010-05-14
Certain types of life insurance policies build up what is called a cash surrender value. The cash surrender value is the payout your beneficiaries will receive if it becomes necessary to use the life insurance policy before its maturity date. While not all types of life insurance policies offer this option, if you are holding a whole life, universal life, or variable life policy, chances are good that you have a cash surrender policy built into it. Such a policy gives you tremendous flexibility as the policyholder. You can actually take out a loan against the surrender value, or cash in the full value should you come into financial hardship or need a loan for a new project or business venture.
If you are shopping for a life insurance policy, it is important to understand that different policies come with different benefits and risks. For instance, a term insurance policy is a simple and affordable way to get the maximum amount of coverage for a specific length of time, set by you, that can be as brief as ten years or as long as thirty years. However, with a term insurance policy you will not build any equity and will not have access to cash value of the policy at any time. On the other hand, a whole life, permanent, universal life, or variable life policy, while more complicated to administer on the front end with a wide variety of options to choose from, will provide you with coverage over the period of your life as long as premium payments are submitted on time. These types of policies also offer a cash surrender value option that typically becomes available after two full years of premium payments.
When your surrender value benefit comes into effect, it may be tempting to cash it in. However, understanding the finer points of how this benefit works will be the key to making it work for you. First of all, this money is tax deferred, and this tax deferred status along with interest accrual is the reason why the account value can grow so quickly. It is possible to take out a loan against the partial or full value of the account and you will never be obligated to pay this money back. But understanding that whatever amount is borrowed or withdrawn without payback will be deducted from benefits paid to your beneficiary, can impact what you choose. For this reason, when the surrender value comes into maturity, it is best to continue to view it as the safety net that it is - there if you need it, and continuing to grow on your behalf while you don't.
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Certain types of life insurance policies build up what is called a cash surrender value. The cash surrender value is the payout your beneficiaries will receive if it becomes necessary to use the life insurance policy before its maturity date. While not all types of life insurance policies offer this option, if you are holding a whole life, universal life, or variable life policy, chances are good that you have a cash surrender policy built into it. Such a policy gives you tremendous flexibility as the policyholder. You can actually take out a loan against the surrender value, or cash in the full value should you come into financial hardship or need a loan for a new project or business venture.
If you are shopping for a life insurance policy, it is important to understand that different policies come with different benefits and risks. For instance, a term insurance policy is a simple and affordable way to get the maximum amount of coverage for a specific length of time, set by you, that can be as brief as ten years or as long as thirty years. However, with a term insurance policy you will not build any equity and will not have access to cash value of the policy at any time. On the other hand, a whole life, permanent, universal life, or variable life policy, while more complicated to administer on the front end with a wide variety of options to choose from, will provide you with coverage over the period of your life as long as premium payments are submitted on time. These types of policies also offer a cash surrender value option that typically becomes available after two full years of premium payments.
When your surrender value benefit comes into effect, it may be tempting to cash it in. However, understanding the finer points of how this benefit works will be the key to making it work for you. First of all, this money is tax deferred, and this tax deferred status along with interest accrual is the reason why the account value can grow so quickly. It is possible to take out a loan against the partial or full value of the account and you will never be obligated to pay this money back. But understanding that whatever amount is borrowed or withdrawn without payback will be deducted from benefits paid to your beneficiary, can impact what you choose. For this reason, when the surrender value comes into maturity, it is best to continue to view it as the safety net that it is - there if you need it, and continuing to grow on your behalf while you don't.
