Cash surrender value: what you get back if you cancel

Only policies with a savings part have one, such as whole life and endowment plans. When you surrender the policy you take the money and the cover ends.

How it works in the Philippines

• After three full years of premiums. Insurance Code Sec. 233(f) says an individual life or endowment policy must set out your options if you stop paying after three full annual premiums have been paid. One option is a cash surrender value, paid when you surrender the policy. The other is one or more paid-up benefits bought with that value.
• A floor on the amount. The reserve is the amount the insurer must set aside to meet its promise on your policy. Under Sec. 233(f)(1), the cash surrender value cannot be less than that reserve for the current policy year (plus any dividend additions, which are policy dividends added to the cover), less a surrender charge. The law caps the charge at one fifth of the entire reserve, or 2.5% of the amount insured and dividend additions. The table in your policy shows the values after the charge.
• A table in the policy. Sec. 233(h) requires the policy to print a table of the cash surrender values and paid-up options for each year, for at least 20 years from the year they start. If you stop paying and do not choose, one of the options takes effect on its own.
• Loans. Once a cash value exists, you can borrow against it, with the policy as the only security. Sec. 233(g) lets you borrow up to the cash surrender value, less any loan you already owe and any unpaid premium for the current year. The loan clause in your policy says how an unpaid loan and its interest are settled when you surrender; they are normally taken off what you receive.
• Term policies. Sec. 233 leaves out the parts that do not apply to term or single premium policies, and a term policy usually builds no cash value at all. Group life and industrial life policies follow other sections; for industrial life, Sec. 236(f) makes a cash value available after five full years of premiums.

Working it out from your policy

Your own figures are in the table printed in your policy (Sec. 233(h)). Find the row for the policy year you are in and read the cash surrender value. Any policy loan you still owe, with its interest, is normally taken off what you receive; the loan clause in your policy says how. What is left is what the insurer pays, and the life cover ends.

The same row shows the paid-up option: you stop paying premiums and keep a smaller sum assured for the rest of the policy. The policy says whether an unpaid loan reduces that amount. You can also keep paying and borrow against the value instead.

In the first years, the cash surrender value is usually much less than the premiums paid, because the early premiums also pay for the life cover and the insurer’s costs.

Where you meet it

• The table of non-forfeiture values or surrender values in the policy contract.
• Your yearly policy statement, which usually shows the current cash value and any loan.
• A surrender request form from the insurer.

Common mistake

A common mistake is surrendering before asking about the other options: reduced paid-up cover or a policy loan. Once the cash surrender value is paid, Sec. 233(j) no longer lets you reinstate the policy.

This page explains the term and does not say whether to keep or surrender a policy. If the insurer’s figures do not match your policy table, the Insurance Commission guide shows how to raise it. See the whole life insurance guide for how cash value builds.