What are the advantages of owning life insurance with cash surrender value?

Life insurance with cash surrender value, also referred to as permanent life insurance, is a complex life insurance product. As its name suggests, it has a cash value element which distinguishes it from term life policies and also opens investment opportunities.

Characteristics of Cash-Value Life Insurance Policies

• Permanent life insurance policies provide lifelong protection up to age 95 or 100.
• The premiums are level and fixed. They have to be paid on time, or else the policy will lapse (although some policies, such as universal life, allow you to vary the premiums every year, or even to skip a premium). Cash-value life insurance premiums might be a bit too high in the early years of the policy but their cost is offset by the fact that in the later years of the policy, when one's mortality cost is high, the premium stays the same.
• Cash-value insurance is a 100-percent guarantee, zero-risk commitment: you are guaranteed that the premiums will stay level, regardless of unfavorable external factors. You are also guaranteed that if the policy is still in force when you die or when you reach a certain age, your beneficiaries will receive the face amount of the insurance.
• Permanent life insurance policies accumulate a cash-value element tax-free in a separate account held by the insurer. The cash-value can reach a considerable amount if left to build up for 15-20 years, which you can invest in the stock market or use to establish different family funds.

Cash-Surrender Value Options

In case you decide to surrender a cash-value policy, you are entitled to receive the cash value that has accumulated throughout the years the policy has been in force.

Here are the options that you have, also called non-forfeiture values:

• You can withdraw the money and receive it in cash.
• You can purchase term life insurance for a certain period of time for the full death benefit.
• You can obtain pre-paid permanent life insurance for a reduced death benefit.
• You can borrow all or part of the cash value in the form of a policy loan. This way you can keep your life policy in force and still have access to the cash value, which you can decide to repay, or else it will be deducted from the death benefit.

• Term vs. permanent life insurance – which should I choose if I am looking for long-term life insurance?
• Do I need to pay federal income tax on life insurance proceeds?
• What are they looking for in life insurance blood test?
• What are the advantages of a life insurance-funded buy-sell agreement?
• Whole life vs term life – what is the difference between term and whole life insurance?