What does the term "surrender value" refer to in life insurance?

The term "surrender value" in life insurance refers specifically to the cash amount available to a policyholder upon cancellation of their policy. This value represents the amount the insurance company will pay the policyholder if they decide to terminate the policy before its maturity and before any death benefit is payable due to the policyholder's death.

Surrender value is built up over time as the policy accrues cash value, which typically happens in whole life or universal life insurance policies. If the policyholder chooses to surrender their policy, they can receive this cash amount, which is less than the total premiums paid and may be adjusted for any outstanding loans or withdrawals taken against the policy.

In a scenario where a policyholder cancels their coverage, this value becomes a key consideration as it provides liquidity and may help policyholders recoup some of their investment in the insurance policy.