Cash Surrender Value

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Related to Cash value: cash surrender value, Cash Value Added

Cash Surrender Value

The amount of money that an insurance company pays the insured upon cancellation of a life insurance policy before death and which is a specific figure assigned to the policy at that particular time, reduced by a charge for administrative expenses.

The cash surrender value of an insurance policy is not based upon its actual value, but upon its reserve value—the face amount of the contract discounted at a specific rate of interest according to the insured's life expectancy. Not all life insurance policies have cash surrender values; the terms of the policy must so provide.

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If the RCV settlement is for $20,000 and the actual cash value is $15,000, yet the insured spends $17,000 to restore the property to its preloss condition, then the insured is only entitled to $17,000.

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Under the general rule of IRC section 101, the death benefit under a life insurance contract is excluded from gross income; however, this avoidance of income recognition will not be permanent when a policy loan is effectively retired by offset against the cash value in connection with cancellation of the contract.

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The umpire took into account other elements, including the property's assessed value, the average value of comparable properties, and the property's market value, all of which were within the $50,000-$70,000 range to determine the actual cash value.

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Even though the taxpayers had used the accumulated cash value in the policy to pay the annual insurance premiums, the court held that these loans constituted taxable income to the extent that they exceeded the cash value of the policy.

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