What is cash value of an insurance plan?
Every life insurance policy when in force for a number of years acquires a cash value. Cash value is derived when your premium payments are more than the cost of insurance. The excess money goes into a cash value account and draws interest. If you decide to surrender your life insurance policy, the life insurance company will pay you the cash value, also known as surrender value.
The cash surrender value is the amount of cash a policyholder gets from the Life Insurance company if they actually surrender/cancel a policy before its maturity or becomes payable on the death of the policyholder. This amount is net of any surrender charges and outstanding policy loans and interest thereon. The cash value of the policy builds up with time. It continues to increase as long as the policy exists.
The other feature is that as the value of the policy grows, it is possible to borrow or take a loan using the cash value or take a loan keeping the policy as collateral to obtain a secured loan. So, having a policy could help you take on a loan by either giving the policy as collateral or by using the surrender cash value of the policy.
Cash surrender value is never the face value of the policy. The face value of the policy is the amount that will be paid out to beneficiaries if the terms and conditions of the policy are met. Cash surrender value is payable to the insured at the time of cancelling the insurance policy. This will be usually be less than the face value.
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