What Is the Cash Surrender Value of a Term Life Insurance Policy
Though most of the term life insurance policies do not include cash values, certain types of such policies do provide cash out options when the term of the policy is over. Such a type of an insurance policy enables you to get cash at the termination of the policy. You should understand the working and what is the cash surrender value of a term life insurance policy.
Term life insurance policy offering return on premium is an extraordinary kind of life insurance. If you intend buying a policy with this feature, it must be mentioned at the time of buying your term life insurance policy. Some companies have a provision as an amendment to the basic policy, allowing the policy to generate cash value that keeps accumulating during the duration of the policy.
However, the accumulated funds remain with the insurance company and policyholder is not permitted to utilize the same. After the term of the policy is over, the policyholder is refunded all the payments made through premiums along with the predefined interest as per the rate selected by the policyholders at the time of buying the policy.
An important benefit of special term life insurance that includes cash return on premium is that your insurance premiums don’t get wasted. Apart from offering the benefit of a life insurance policy during its tenure, the insured, on the maturity of the policy, also gets back the entire amount that they would have paid towards the policy. The amount so received can be utilized for buying another policy or could be invested in any other preferred manner.
The drawback of such a term life policy offering return on investment is that the amount of payable premiums is at least twice that of a usual term life policy. Other than that, the interest you get on your return of premium is generally less than what you may get by investing your funds in other money market instruments or bank CDs.
You need to weigh your options when considering buying such special policy. You should calculate if you’ll be able to earn an interest amount equal to or more than the amount of return of premium by investing your money in alternate options of investment, like bank CDs, fixed annuity or any money market instrument. Here’s an example. Let’s assume that the cost of buying this kind of a policy is $60/month and you get back $900 from the insurance company when the term of your policy ends. If you think that on buying the usual term policy and making adequate investments that pay you an amount equal to or more than $900, the amount that the insurance company would pay you on buying a policy with return of premium feature, you should prefer buying a normal term life policy. An important consideration here is your acumen to simultaneously manage another investment. You’ll appreciate that the return on premium characteristic works as a forced saving plan for you in case you are not confident of choosing an alternate investment and maintaining it for offsetting the expense of a common term insurance. On knowing what is the cash surrender value of a term life insurance policy, you can make a more calculated decision.