Cash Surrender Value: What Does This Mean?

Shawn Plummer

CEO, The Annuity Expert

What is the Cash Surrender Value?

Cash surrender value is the amount of money you get back when you prematurely cancel your insurance policy. For example, your annuity or life insurance policy’s accumulation value minus any surrender charges is your cash surrender value.

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Annuity Cash Surrender Value

Fees reduce the annuity’s value. This value is called the cash surrender value or annuity surrender value. However, these costs help cover the company’s costs to sell and manage the annuity and pay you benefits. Therefore, the insurer may subtract these costs from your annuity value.

Read your contract carefully – they are different for each product – and ask any questions if you don’t understand how the charges work.

Surrender Charges

A surrender or withdrawal charge is a fee you pay if you take a portion or all of your money out of your annuity before a set period of time. This fee is a percentage of the annuity’s value, and this percentage goes down each year until the charge period ends. Thus, the net amount of money received after charges are taken out is the cash surrender value.

After the surrender period has ended, there are no more surrender charges in most cases.

Look for any waivers for events such as entering a nursing home, assisted living facility, or long-term care services. Most deferred annuities offer the right to take out a small amount (usually up to 10%) each year without paying the charge.

Annuity Tip: If you decide to cancel your annuity prematurely, withdraw the penalty-free amount first, then cancel the annuity. You will save money from the charges because the annuity’s value is of lesser value.

Market Value Adjustment (MVA)

Some annuities have a Market Value Adjustment. An MVA can increase or decrease the account value, cash surrender value, and/or death benefit for an annuity if you withdraw money from it.

If interest rates are higher when you withdraw money than when you bought the annuity, then the MVA could reduce how much you can take from it. If interest rates are lower, then the MVA could let you take more. Every calculation is different.

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Permanent Life Insurance Cash Surrender Value

What is the cash surrender value of life insurance? Cash surrender value is the accumulated fraction of a permanent life insurance policy’s cash value available to the owner upon retiring from the policy before their death. Depending on the age of the policy, this number can be less than what was originally invested in it.

A surrender or withdrawal charge is a fee you pay if you take a portion or all of your money out of your annuity before a set period of time. This fee is a percentage of the annuity’s value, and this percentage goes down each year until the charge period ends. Thus, the net amount of money received after charges are taken out is the cash surrender value.

After the surrender period has ended, there are no more life insurance surrender charges in most cases.

Look for any waivers for events such as entering a nursing home, assisted living facility, or long-term care services. Most deferred annuities offer the right to take out a small amount (usually up to 10%) each year without paying the charge.

Life Insurance Tip: If you decide to cancel your life insurance policy prematurely, withdraw the penalty-free amount, utilize a loan, or exercise a waiver or living benefit first, then considering canceling the life insurance.

Whole Life Insurance Cash Surrender Value

Cash surrender value is the money you get back when you stop paying for your whole life insurance policy. But there is not a lot of money from this in the beginning because it has to pay for the cost of your life insurance.

In most whole life insurance plans, the cash value is guaranteed. However, you can only get this money back if you cancel your policy.

Policyholders can borrow money from their insurance policy. The more you borrow, the less your death benefit will be. Loans are typically tax-free. If you don’t repay the loan and you cancel the policy, you’ll have to pay taxes on those loans.

After the surrender period has ended, there are no more surrender charges in most cases.

Universal Life Insurance Cash Surrender Value

Universal life insurance doesn’t typically include a guaranteed cash value, but it can be surrendered after the first year. Universal policies offer a surrender period where you could use up to 10% of your policy’s cash value without having to pay a surcharge. After the surrender period has ended, there are no more surrender charges.

Policyholders are responsible for the taxes on portions of the surrendered cash values that represent cash value earnings.

Why you can trust The Annuity Expert

At The Annuity Expert, we strive to help you make confident financial decisions regarding annuities. Content provided is created by an independent licensed financial professional.

The Annuity Expert is an online insurance agency that provides the widest variety of annuities in the United States. When you buy an annuity directly from us, we receive a predetermined commission from the insurance company (not you). While your annuity is active, clients are not charged any servicing or management fees. Learn more.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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