The cash value insurance contract also called the cash value of the surrender or the value of the surrender is the cash amount offered by the policy owner to the life carrier of the edition after the cancellation of the contract. This term is commonly used with a life insurance contract.
Cash value of the insurance contract
Cash value insurance is generally agreed upon in case of early cancellations in such insurance contracts, in particular in life insurance contracts where premiums go to savings plan, such as life insurance. Such amounts will often undoubtedly be paid in case of survival only and will not be paid to the beneficiaries as part of the death benefit. The contract defines the associated cash value for each possible cancellation date. If the premium investments under the contract are made in a separate account, the monetary value is the value of the investment in that account at any given time. This monetary value, credited to a separate account during the policy’s term of stay, continues to increase with each premium payment. It also increases due to accrued interest.
The policyholder may also be able to use the monetary value as collateral for the loan.
Guaranteed cash value
Since often initial premiums do not invest but covering the initial costs associated with the sale of the contract (front-end or front-end fee), the available amount can be significantly lower than the amount of insurance premiums paid for some time, initially even zero. Later, the accrued interest could compensate for that initial loss.
The determination of monetary value, and the principal amount and the applicable charge of surrender, in a contract may be explicit by determining the value for each delivery date (the guaranteed monetary value), referring to the value of certain investments or largely depending on the initiative of the insurance company performed to bring monetary value in accordance with the investment values of the insurance company. The guaranteed monetary value may result in significant risks to the insurance company if the guarantee exceeds the economic value of the rights of the policyholders under the contract and the value of the inventory is held.