MoneyLife

How To Calculate Cash Surrender Value of Life Insurance

By Alison Kimberly
How To Calculate Cash Surrender Value of Life Insurance

In the event of a medical emergency, a change in your family’s circumstances, or a sudden need for cash, you can choose to cancel your cash value life insurance policy and receive money back in return. However, if you choose to surrender this type of cash value life insurance, you will receive what’s known as the surrender value, which is usually the amount you put towards the policy over time and the interest accrued. 

You can calculate your cash surrender value and figure out the amount of cash that will be available to you if you forfeit or cancel your permanent life insurance value at any stage. This is helpful because it means you can determine if it is a good idea for you and your family to cancel your cash value life insurance. Here’s the 411 on how to calculate cash surrender value of life insurance and everything you need to know! 

What is the cash surrender value of life insurance? 

Cash-value life insurance comes in a variety of forms, including whole life, universal, indexed, or variable. Cash surrender value life insurance refers to a policy where you pay the insurance premium plus fees and a cash value. 

The cash value will accumulate with interest and it can be cashed out if needed. The cash surrender value calculation is a way to figure out how much money you will receive if you choose to surrender your life insurance at a certain point in time. 

The main advantage of cash value life insurance is that there are death benefits that will be paid to your designated beneficiaries after you die. Another advantage of cash value life insurance is that as you build a cash reserve, you can choose to withdraw a portion of your money or you can put it towards insurance premiums in the future. 

On the other hand, there are major disadvantages of cash value life insurance as well, namely the fact that they often come with high fees and premiums. In many cases, you are better off protecting your family with an IRA account or a MoneyLion account. 

What is the average cash surrender value of a life insurance policy?

The average cash surrender value of a life insurance policy is the amount of cash you will receive on the insurance policy if you forfeit or surrender the policy. Factors that influence cash surrender value include the duration of the account, the amount paid, and market performance. 

With most cash value life insurance policies, there is a surrender period, which is an amount of time that you must wait before you can access the cash value. The average cash surrender value is about $460 per $100,000 in value. 

4 steps to calculate cash surrender value 

The answer to the question of how to find cash value of life insurance policy is both simple and complex. Essentially, you can get a rough estimate of your life insurance policy’s cash value by multiplying your monthly insurance payment by the number of months you’ve paid for your policy so far. To get a more precise figure, follow the steps below! 

1. Find the total cash value

The total cash value refers to the insurance premiums that you’ve been paying minus the death benefit. It can also be the cash portion of your monthly payments multiplied by the number of months you’ve been paying premiums. If the cash portion of your monthly insurance premium is $100, and you’ve been paying for four years or 48 months, then your cash value will be $4,800.

2. Deduct fees

Once you know the total cash value, you’ll need to deduct any surrender fees or changes imposed by the life insurance company. 

3. Calculate the new cash value

By deducting fees and penalties from the total cash value, you will obtain the cash surrender value of your life insurance policy. This number will change over time as you pay more towards your policy and if the insurance company’s policies or fees change. 

4. Calculate taxes owed

If the cash value has earned interest or dividends and the total cash surrender value is higher than your calculation in step one, then you will owe taxes on the income you earn. If it is the same as the cash value, you won’t owe taxes. 

As you can see, the surrender value vs cash value is the difference in whether or not taxes are owed. If the surrender value is greater than the cash value, you will owe taxes on the difference. 

Avoid cash surrender penalties with MoneyLion’s Safety Net

An alternative to taking a cash surrender value and forfeiting some or all of your cash life insurance is MoneyLion’s Safety Net feature. You can use it to build savings and take out loans when you need help paying your bills. If you have at least one direct deposit set up with your RoarMoney account, you’ll be eligible for Safety Net protection

With the Safety Net tool, you’ll be able to see how much money you have in your RoarMoney account at a glance. You’ll also be able to view your investment account and access Instacash cash advances. With the click of a button, you can easily request additional funds, avoid penalties and late fees, or withdraw funds when you need them. 

Cash surrender vs MoneyLion investing

Figuring out how to calculate cash surrender value of life insurance is an important part of your financial planning process. And luckily, you can calculate your cash surrender value within a few minutes. 

If you choose to take the cash surrender value of your life insurance policy, you can then invest that money and build greater long-term wealth with lower fees by opening your own MoneyLion investment account. Using the MoneyLion Round Up feature, you’ll easily investing more money towards your future. 

Since each financial decision needs to be guided by your personal financial goals, MoneyLion helps provide you with the tools you need to gain control of your finances. That way, you won’t have to surrender your cash value life insurance!

FAQs

Is there a penalty for cashing out life insurance?

Yes, there are usually surrender fees for cashing out life insurance. Some policies include additional fees for cashing out before a certain period of time has passed.

How soon can I borrow from my life insurance policy?

While you may be asking, “Can I cash out my life insurance policy?” the answer is that you can usually borrow from your life insurance policy as soon as you have built up enough cash value. For some policies, this is from the first payment, whereas other policies will require you to build value over time.

Are life insurance payouts taxed?

Life insurance payouts disbursed to beneficiaries are not taxed. However, if you take the cash surrender value of a life insurance policy and that value is more than the cash value you paid, the income will be taxed.

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