Accumulated Value Details

The accumulated value is essential when it comes to insurance plans. The term “accumulated value” tells you and your insurance agent how much value your life insurance plan has. This information is essential because policyholders are allowed to withdraw funds against their policy.

The accumulated value starts to build when a policyholder of a whole life insurance policy, otherwise known as a universal life insurance policy, starts paying the monthly premium. The insurance company divides the payments in half and uses one part to cover the basic policy costs. The other part is placed in an internal account and begins to amass value.

Example of Accumulated Value

Say Johnny gets a whole life insurance policy, and the monthly premium is $150 per month. In this case, this means that $75 of the premium goes to paying the basic costs, and the other $75 goes into the account itself. Each month another $75 is added to the account as Johnny pays each monthly premium.

Significance of Accumulated Value

If your policy allows it, you can borrow against the cash surrender value of your policy. You would surrender your whole life insurance policy to your insurance company and get the cash surrender value back. You may not receive the total accumulated value in your account because of any surrender fees.

You then have the choice to repay the loan in full, repay just the interest, or pay none of it back. If you do not pay the total amount of the loan, then your insurance agency will deduct the amount from any final death benefits. So think of your life insurance policy as a forced savings account. You can borrow money from it but still keep your policy intact.

If you cancel the account at any point, you will receive the accumulated value once the company takes out any fees. Also, whole life insurance policies are tax-deferred as long as the account is valid. This deferment means the money in your account will not be taxed until you start receiving money from the policy.

Accumulated Value vs. Annuities

An annuity has a different accumulation value and cash surrender value. If you have an annuity, the accumulation value is the total amount in it. The cash surrender value has a 10% surrender penalty. So if you choose to withdraw funds, you need to deduct 10% from the total amount in the annuity so that you know how much you’ll be getting.

This is the same if you choose to roll over your annuity to a new account. You will still need to pay the 10% surrender penalty. For example, if you have an annuity with the accumulated value of $200,000 and roll it over to a new account, your new account will start with $180,000.