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Will I lose my cash accumulation value if I cancel my whole life insurance?

I am realizing now (6 years after opening) that my whole life insurance policy is a bad investment. I notice on the policy there is a cash accumulation value and a cash surrender value. They are grossly different. If I cancel the policy do I only get the cash surrender value? If so, is there any way to get more? Do I just admit making a financial blunder and walk away from the policy?

Public Comments

1. If you cancel the policy and cash it out, you'll get the surrender value (that's why they call it a surrender value.) However, there are other options. You can take the cash value of the policy and do what's called a 1035 rollover of the money to a different type of life insurance policy. While you can't roll it to a term policy, you could roll it into a universal policy. Think of a universal policy like a term policy on steroids -- it won't build cash value the way a whole life policy does (at least not after the first few years), but if you buy the right type of universal policy (with a guaranteed death benefit) you can get coverage for the rest of your life. (As opposed to a term policy that runs out at the end of a specified term and you have nothing to show for the money you've put into it.) It's generally a LOT cheaper than whole life, but a little more expensive than term. (Still, in the long run, it's a better bet than term, in my opinion; term rates are generally cheap because the odds are good you'll outlive it.) Feel free to email me if you have questions.
2. ISO's answer is correct: you'd get the surrender value. However, I do NOT recommend you purchase a Universal Life policy. To illustrate why, do a simple internet search using these words: "Universal Life + Class Action Lawsuit." Agents typically tell you the policy will last your entire life, but what they forget to tell you is that the premiums are tied to the market; when the policy makes little money for itself (as they are right now), you have to contribute extra money above the monthly premium. To a person on a fixed income, this is impossible. So the policy has to reach into it's cash value to pay the extra amount that's needed. This is why so many elderly people with UL policies have lost their life insurance. My advice: leave the UL's alone and buy a term policy. It's MUCH cheaper, but you'll have no cash value. Life insurance shouldn't EVER be purchased as an "investment."
3. No, you will receive the cash surrender value of the policy. Despite a long career in the life insurance business, I strongly advise you to never purchase life insurance as a way to accumulate money. Stick to term insurance and invest whatever you can afford to save in a separate savings vehicle. Your cash accumulation will be far better than what interest rates the insurance companies credit to you. Also keep in mind that insurance salesmen, even the most noble of them, still pay their mortgage and buy their food off the commissions they get from your purchase. Most agents will collect 60 to 90% of your first year premium as their commission. I'd prefer you save that money and put it in savings. Feel free to email me if you have further questions.
4. Should you cancel the policy, you will only receive the surrender value of the cash account. You are right in saying that it is a bad investment. A life agent should NEVER tell anyone that whole and universal is an investment. We are not allowed to say this without possible loss of license if insurance commissioner finds out.
5. Yes, you get the cash surrender value. Yes, you just walk away, with the cash surrender value. No use throwing good money after bad, this was just an expensive financial lesson.
6. If you surrender the policy or do an external 1035, you will only receive the surrender value. You will only be able to get the cash value if you do an internal 1035 within the same company. Using life insurance for the purposes of accumulating cash value is usually a bad idea. Your first goal should always be death benefit. Anything else is a pleasant side effect. It sounds like from your description, you have a universal life policy now, not a whole life policy. If you had a whole life policy, the surrender charge would be reflected in the difference between the cash value and the interpolated value (usually not on your statement). Suzanne's right about the older style of UL having some problems, but there are more contemporary options that are usually less expensive than whole life policies and contractually will not lapse as long as you make your payments on time. Having said that, if you do not always get your bills in on time or you only have a temporary need for coverage, this is not right for you either. Talk with at least 2-3 different agents about your specific situation to get multiple perspectives and find the one that is best for you.