Sometimes referred to as a surrender value or a cash value, the cash surrender value is the amount of cash that can be realized in the event that an insurance policy is canceled. This most often involves a whole life policy that does not reach maturity for some reason. Any cash value that is inherent in the coverage at the time of the cancellation of an insurance policy will result in a cash payment to the insured party.
One of the attractive aspects of many types of insurance policies is the ability to accrue cash value over time. Generally the cash value will continue to increase the longer that 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.
Utilizing the whole life policy as an asset to secure a loan usually makes note of the current cash surrender value of the policy. Essentially, the lender will use this figure as the redeemable worth of the asset. By employing this value as the collateral for the loan, the lender is assured of recouping the value of the loan, even if the debtor defaults for some reason. The debtor, in turn, does not have to bind other assets that he or she could part with if financial necessity required the sale of some property 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 beneficiaries as long as the terms of the policy are met. Cash surrender value is payable to the insured at the time that a decision to cancel insurance policy coverage is made, and will be significantly less than the face value.