Accumulated Value vs. Cash Surrender Value

by Melinda Hill Mendoza

The accumulated value of a life insurance policy or an annuity is the monetary value of the policy, not including any surrender charges. Surrender charges are a penalty, typically a percentage of the amount being withdrawn from the policy. Most annuities and life insurance policies have surrender charges during the first 10 to 15 policy years. The value of an annuity or life insurance policy less any surrender charges is the cash surrender value.

Annuity Overview

Annuities are insurance policies with a monetary value that grows over time. The policy owner pays a lump sum to start the annuity, which grows at a monthly or annual rate, depending on the terms of the policy. The monetary value can be converted to a monthly income that’s guaranteed to pay out over a period of time. Annuities can be paid out over the owner’s lifetime or a shorter period of time such as 10 years.

Annuity Values

An annuity’s accumulation value indicates the overall value of the annuity. An annuity’s cash surrender value indicates the amount available to withdraw from the policy. For example, an annuity policy’s accumulated value could be $100,000, but if the policy has a 10 percent surrender penalty, the cash surrender value is actually $90,000. If you wanted to close or rollover the annuity, the amount you or the new account would receive is $90,000.

Life Insurance Overview

Life insurance pays out a monetary benefit to a beneficiary when the person insured by the policy dies. Term life insurance policies don’t accumulate cash value and are in effect for a set time period, such as 20 years. Whole and universal life insurance policies are in effect as long as the owner pays the premiums and accumulate cash value. Whole and universal life insurance policies usually cost more than term life insurance, if the amount of coverage is the same.

Life Insurance Values

If you choose to end a life insurance policy, you can surrender it to the insurance company and receive the cash surrender value of the policy in return. The cash value can be less than the accumulated value if the policy had surrender charges. Depending on the terms of the life insurance policy, you might be able to borrow against the cash surrender value of the policy. You can repay the loan in full, repay just the interest, or not pay back the loan or interest. If you don’t repay the loan in full, the amount outstanding will be deducted from the final death benefit.