Life Insurance Policy Account Value Vs. Surrender Value

Read a policy contract to determine the surrender charges.
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Although the basic element of life insurance is the financial security provided by the tax-free death benefit, some sophisticated permanent products like universal life insurance allow you to accumulate a savings on which taxes are deferred. Some products may also provide an option allowing for the payment of the investment component tax-free, which could lend itself to a variety of estate planning needs.

Policy Account Value

The policy account value of your universal life policy reflects all of your credits and debits. Credits include premium payments and interest, while debits include fees such as administration costs and deductions for the insurance portion of the policy, as well as any withdrawals. You select from a variety of investment options offered by the insurance company. They may include anything from guaranteed accounts to funds related to stocks and bonds, from which an interest rate is derived based on the overall performance of your selected portfolio.

Surrender Value

The surrender value is typically equal to the policy account value less an applicable surrender charge. Insurance companies impose a surrender charge in the early years of the contract in order to recover expenses such as agent commissions. Surrender charges are stated in your policy contract and typically last for a set period, such as 10 or 15 years. Surrender charges also usually decrease with each policy year until they reach zero. When the surrender charge reaches zero, the policy account value will equal the policy’s surrender value.


If you take a withdrawal from your policy during the surrender charge period, the withdrawal amount will be deducted from your policy account value and the insurance company will pay you the amount of the withdrawal minus the surrender charge applicable for that policy year.

Loan Collateral

Rather than taking withdrawals, you may take a policy loan. Insurance companies typically set the maximum policy loan amount as a percentage of the surrender value. You may also assign your policy to a bank in exchange for loans. The maximum loan value the bank would consider is also based on the policy surrender value.


Some universal life policies allow you the option to have the investment component of your policy in addition to the face amount paid upon death. If you select this option, your named beneficiary will receive, tax-free, the face amount of the policy plus the policy’s account value (not the surrender value). This feature allows you to pass on a portion of your investment portfolio directly to an heir with no taxation and without going through probate.

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