Life Insurance Policy Account Value Vs. Surrender Value

Life insurance, often purchased to protect your dependents in case you die while they still rely on your income, might also have a cash value and be used for investment purposes. This cash value can be a source of money through withdrawals or loans. The surrender value is what the policy is worth if you take out all of the cash value. The account balance is the actual value of all of the investments in the policy.

Account Value

The account value of a life insurance policy that builds cash value is the amount that the investment portion of the policy is worth. The life insurance company puts some of the money you pay as premiums into various types of investments, with the expectations that they'll gain in value. Some cash-value policies let you choose your investments.

Surrender Value

Some cash-value life insurance policies levy a surrender charge if you cash them in before a certain length of time. This leads to the difference between cash or account value and surrender value. Surrender charges generally become lower the longer you own the life insurance policy. With most policies the surrender charges eventually disappear, and the account value and surrender value of the policy become the same.

Face Value

The face value of the policy is the death benefit that it provides. This is the minimum that the beneficiary would receive from the policy, as long as you don't have an outstanding loan against a cash-value policy. Some policies, typically universal life policies, pay more than the face value if you die and their investments have gained in value. The policy might pay the surrender value of the policy in addition to the face value.

Other Considerations

Not all life insurance policies have account values or surrender values. Term life insurance policies provide insurance only, without building cash value or offering any type of investment. Because there's no investment component, premiums are considerably lower on term life insurance policies than on whole life or universal life policies. A term life insurance policy is in effect for only a certain time. Once the term is over, the coverage ends. Whole or universal life policies are sometimes called permanent insurance. Their coverage stays in effect as long as you pay the premiums.

About the Author

Craig Woodman began writing professionally in 2007. Woodman's articles have been published in "Professional Distributor" magazine and in various online publications. He has written extensively on automotive issues, business, personal finance and recreational vehicles. Woodman is pursuing a Bachelor of Science in finance through online education.

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