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Cash surrender value is the amount of cash that can be obtained when an insurance policy is cancelled, often from a whole life policy. The value can be borrowed against or used as collateral for a loan, but is not the same as the face value of the policy.
Sometimes referred to as surrender value or cash value, cash surrender value is the amount of cash that can be realized in the event an insurance policy is cancelled. This often involves a whole life policy that does not reach maturity for some reason. Any cash value that is attached to the coverage at the time of cancellation of an insurance policy will result in a cash payment to the insured.
One of the attractive aspects of many types of insurance policies is the ability to accumulate cash value over time. In general, the cash value will continue to increase the longer the policy is in effect. As the value of the policy grows, it is often possible to borrow against this cash value or even use the policy as collateral to secure a loan.
Using the whole life policy as an asset to secure a loan generally takes note of the current cash surrender value of the policy. Essentially, the lender will use this figure as the redeemable value of the asset. By using this value as collateral for the loan, the lender ensures that the value of the loan is recovered, even if the borrower defaults for some reason. The debtor, in turn, does not have to link other assets that could be separated from if financial need requires the sale of some properties or other investments.
Cash surrender value should never be confused with the face value of any life insurance coverage. The face value of the policy has to do with the amount that will be paid out to the beneficiaries as long as the terms of the policy are met. The cash surrender value is paid to the insured at the time the decision to cancel insurance policy coverage is made, and will be significantly less than face value.
Smart Asset.
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