Cash Surrender Value

We’re talking life insurance, which can be immensely confusing itself. The cash surrender value is referred to as the cash value of that permanent life insurance product, surrendered upon your choice to pay for your premiums, buy more coverage, exchange for an annuity, or simply use as a loan or lump sum to purchase your new yacht…minus any applicable fees, of course, or operating costs, or transfers, or withdrawals, or loan payments, or any other ambiguous fees that the insurance company has deemed fit to charge to its clients.

Clear as mud? We thought so.

Here’s an example. You buy a permanent life insurance policy that will leave your loved ones millions upon your death. To buy this lovely policy, you make premium payments to support this immense death benefit (lucky them). You decide that they don’t deserve your millions after learning about the hitman they hired, and you want out of the policy.

Of course your cash value (premiums paid plus growth minus fees) is different from the face value (the millions you were going to leave your ungrateful family upon your death), but you take the lump sum cash value anyway to buy your yacht.

Sounds like a reasonable scenario, right? Just make sure you share the details of the cash surrender with your tax guy, or the IRS will send you a nice little love note asking you to surrender some cash to them.