An advantage of permanent life insurance, aside from the death benefit, is the accumulation of cash inside the policy. Permanent policies build equity, and you may access this money if you surrender your policy.
Cash Value Accumulation
A small portion of your payment is set aside into a separate account within your policy. This is your cash value, and the type of policy you have determines how interest is credited. Many carriers refer to cash value as “accumulated” value.
The surrender period is the length of time you must keep the policy to fully access to the accumulated value. This helps carriers recoup the expense of establishing your policy.
The surrender charge is the percentage of your cash value that the carrier keeps if you cancel your coverage before the end of the surrender period. This percentage reduces every year until eventually diminishing to zero.
The surrender value is the actual amount of money you will receive if you cancel your policy before the end of the surrender period. The surrender charge percentage is subtracted from the cash value, and the balance is refunded to you.
The accumulation value can be accessed without surrendering your policy. At any time, you can request a loan for the cash value. Surrender charges are not imposed on policy loans, and there is no restriction on when you can borrow the cash value.
Gregory Gambone is senior vice president of a small New Jersey insurance brokerage. His expertise is insurance and employee benefits. He has been writing since 1997. Gambone released his first book, "Financial Planning Basics," in 2007 and continues to work on his next industry publication. He earned a Bachelor of Science in psychology from Fairleigh Dickinson University.