Surrender value refers to the amount a person would receive if they withdraw money from their own life insurance policy’s cash value. For most permanent life insurance policies and some annuities, the life insurance policy has an investment portfolio part that builds interest over time, and the policy owner often can withdraw funds from or take a loan against the policy. The amount a policyholder can withdraw from their life insurance policy at any time is called the surrender value. Surrender value is not to be confused with the cash value. The cash value is the amount the policy is worth as it builds over time. When someone withdraws funds from the policy, it often will incur steep fees for early withdrawal, and the surrender value is the amount after the fees have been deducted. After a period of time set in the policy, the policyholder usually can withdraw the cash value without any fees, in which case the cash value and surrender value would be the same.
[Last updated in August of 2021 by the Wex Definitions Team]