Account value vs cash surrender value

Every indexed universal life (IUL) illustration and annual statement shows two value lines side by side. The account value is what the policy has built: premiums less charges, plus index and fixed credits, less withdrawals. Insurers also call it the policy value or the cash value. The cash surrender value is what the policy would pay if it were closed that day.

What sits between the two figures

Start from the account value and deduct:

• The surrender charge for the current policy year. It is highest in the first year and falls each year to nil at the end of the surrender charge period, typically 10 to 15 years on international IUL.
• Any policy loan, with interest due.

The result is the net cash surrender value. The surrender charge recovers the insurer's cost of issuing the policy, so once the schedule reaches nil the cash surrender value equals the account value less any loan.

Which figure each feature uses

• Credits. Earned on the account value, including the part a surrender charge would take.
• Policy loans. The maximum loan is worked out from the net cash surrender value, less loan interest and monthly charges due to the next policy anniversary. One contract lends up to 80% of that figure.
• Partial withdrawals. Deducted from the account value. In the surrender charge period a withdrawal can also carry a surrender charge, depending on the contract.
• Cumulative guarantee. On a full surrender, and on some contracts at death or maturity, the insurer uses the higher of the account value and the cumulative guarantee value. On a surrender, any surrender charge and loan are then deducted. See minimum interest rate.
• Monthly charges. Deducted from the account value. The policy stays in force while the net cash surrender value covers them.

Worked example

Illustrative figures, not a forecast. A US$1,000,000 single premium on a policy with a 10-year surrender charge schedule.

• Year 1: account value US$975,000; surrender charge US$120,000; cash surrender value US$855,000.
• Year 5: account value US$1,180,000; surrender charge US$90,000; cash surrender value US$1,090,000.
• Year 10: account value US$1,560,000; surrender charge US$25,000; cash surrender value US$1,535,000.
• Year 15: account value US$2,150,000; surrender charge nil; cash surrender value US$2,150,000.
• Year 15 with a US$300,000 loan outstanding: net cash surrender value US$1,850,000, while the account value line still shows US$2,150,000.

On the surrender value line alone, year 1 reads as a fall of 14.5%. The account value line shows 97.5% of the premium at work in the policy.

In an international IUL

Capital for Life reads the account value column of an illustration, not the net cash surrender value. The account value shows how the policy is building; in the early years the surrender value mainly reflects the surrender charge schedule. Where an offshore trust or company owns the policy, a surrender pays the net cash surrender value to the trust or company as policyholder.

Common questions

Why is my IUL cash surrender value lower than the account value?

The difference is the surrender charge for the current policy year, plus any outstanding loan and interest. The charge falls each year and reaches nil at the end of the surrender charge period, typically 10 to 15 years on international IUL. After that, only a loan separates the two figures.

How much do I get if I surrender an IUL?

The net cash surrender value: the account value less any surrender charge, outstanding loan and interest due. Where the contract has a cumulative guarantee and its value is higher than the account value at full surrender, the higher figure is used before those deductions.

Go deeper: how IUL works and loan or withdrawal, and the surrender charge schedule.