Guaranteed Cash Value vs. Net Cash Value Life Insurance

Cash values, more properly called cash surrender values (CSV), are features of permanent life insurance products that include whole life, universal life, variable life and universal-variable life policies. The CSV is the amount of money you receive if you choose to stop paying your premiums and give up your insurance protection. CSVs are also a feature of deferred annuities.

Permanent Life Insurance

Permanent life insurance provides protection until you die. Unlike term insurance, which provides protection for a fixed term such as ​10 or 20 years​, permanent insurance does not expire so long as the premiums are being paid. Another feature of permanent life insurance is its savings component.

Premiums are higher compared to term insurance; the reason is that part of the money builds up a savings account. The money in the savings account will grow, and the amount in the savings account is called the cash surrender value.

Different Types of Permanent Life Insurance

The money that gets put into the insurance savings account will be invested in different ways, depending on the type of permanent life insurance policy you have. There are four different types of permanent life insurance policies: whole life, universal life, variable life and universal-variable life.

Whole life policies may pay interest or a policy dividend. Universal policies typically pay the equivalent of a money market rate. Variable and universal-variable policies allow you to choose your own investments. In each case, the cash value is expected to grow over time.

Guaranteed Cash Value Life Insurance

The four types of permanent life insurance policies have CSVs that you can anticipate will grow over time. Universal, variable and universal-variable life policies do not provide CSV guarantees. Traditionally, whole life policies do provide a guarantee, and this is detailed in a policy illustration provided to you when you purchase the policy.

A good illustration will show an increasing guaranteed CSV for decades into the future. Of course, if you die and the policy pays out, then it is the death benefit that gets paid, which will always be higher than the CSV.

Net Cash Value Life Insurance

Net cash value, more properly called the net cash surrender value, is a feature of a deferred annuity. An annuity is a series of regular payments paid by an insurance company. It typically comes with a death benefit.

A deferred annuity is paid in the future. For example, you might purchase an annuity that is deferred for 20 years, and this means that the payments do not start for 20 years into the future. During the first 20 years, you pay into the annuity. This is called the accumulation phase.

If you decide to withdraw your money and forgo the annuity payments, the amount you are paid may have surrender charges. This is a fee for selling the deferred annuity early. The net cash surrender value refers to the cash value of the deferred annuity during the accumulation phase, less any applicable surrender charges.