Term Insurance May 4, 2020

Cash surrender value is the sum of money an insurance company pays to the policyholder in the event their policy is voluntarily terminated before its maturity or an insured incident occurs. When you surrender your policy you are forfeiting your coverage and availing the accumulated cash value and will pay no further premiums in the policy. When you cash out the policy the bank levies certain charges vary from policy to policy. These charges are reduced from the accumulated cash value of the policy.

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Before terminating your policy, you need to remember that the result of it will be the loss of your life coverage. If you require money you may consider borrowing it against your life insurance policy. When you choose to surrender in the midway of your policy, your nominees do not get any benefits of the policy in case of any unfortunate event.

How Does Cash Surrender Value Works?

To understand the calculation of the Cash surrender value you need to comprehend its working. You pay a premium amount to avail an insurance coverage. Some of that money goes to pay for the death benefit protection that the policy provides, some of it used to pay the administrative fees and the remaining amount is invested by the insurer on your behalf. This amount of money earn returns through such investments, which are then provided as accumulated benefits.

How the Cash Surrender Value Calculated?

The cash value of a life policy accumulates over the years. Therefore to increase the amount of the cash value of the policy, you should pay regular premiums for a longer period of time. This is because the investible component of the premium has a longer time to grow. To get the idea of what is Cash Value In your life insurance policy, it is recommended to consult your financial advisor or directly obtain the calculation from your insurer. You also need to know what is Surrender period – it is basically the period that you need to wait before the policy has a cash value.

There are several factors that come into consideration while calculating the Cash value in your policy –

  1. How long the policy has been in force and the total amount of premium paid
  2. The amount of interest, dividends or capitals gains earned by the cash value in the policy
  3. The amount of case surrender fees and charges the insurance company will assess in order to liquidate the policy. These charges remain in effect for as long as 10 or 15 years after purchases in some cases. Once this period of time has elapsed, the policy cash value will equal the cash surrender value.

If your policy is new then you’ll probably get little or no cash value, because your life insurance policy hasn’t had much time to accumulate and the life insurance company will assess the surrender charges regardless of the amount you receive.

Surrender Fees

Surrender fees is basically the amount charged by your insurer when you discontinue your life insurance policy before its maturity or withdraw funds prematurely. It is usually higher in the initial years and reduces as time passes.

It is an important decision to surrender your policy, you may consider every aspect before doing so or should take advise from your financial advisor.

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