A. This section shall apply only to life insurance policies issued prior to the operative date stated in § 38.2-3214. B. The nonforfeiture benefit referred to in § 38.2-3309 shall be available to the insured in the event of default in premium payments, after premiums have been paid for three full years. The premium paid for the insured under any policy provision shall not be considered in default. The nonforfeiture benefit shall be a stipulated form of insurance, effective from the due date of the defaulted premium, the net value of which shall at least equal the reserve at the date of default on the policy and on any dividend additions to the policy, exclusive of the reserve on account of return premium insurance and on total and permanent disability and additional accidental death benefits, less a sum not more than 2 1/2 percent of the amount insured by the policy and of any dividend additions to the policy and less any existing indebtedness to the insurer on or secured by the policy. The policy shall specify the mortality table and rate of interest used in computing these reserves. Instead of allowing a deduction from the reserve of a sum not more than 2 1/2 percent of the amount insured by the policy, and of any dividend additions to the policy, the insurer may insert in the policy a provision that one-fifth of the reserve may be deducted, or may provide in the policy that a deduction may be made of 2 1/2 percent of the amount insured by the policy or one-fifth of the reserve, at the insurer's option. The cash surrender value referred to in § 38.2-3309 shall be available upon surrender of the policy to the insurer within one month of the due date of the defaulted premium and shall at least equal the sum which would otherwise be available for the purchase of insurance. The insurer may defer payment for not more than three months after the application for the cash surrender value is made. C. If more than one option is provided, the policy shall stipulate which of the options shall be effective if the insured does not elect any option on or before the expiration of the grace period allowed for the payment of the premium. D. A provision may also be inserted in the policy that in the event of default in a premium payment before the options become available, the reserve on any dividend additions then in force may, at the insurer's option, be paid in cash or applied as a net premium to the purchase of paid-up term insurance for any amount not exceeding the face amount of the original policy. E. This section shall apply to term insurance policies only if the term is for more than twenty years. Code 1950, § 38-374; 1952, c. 317, § 38.1-459; 1986, c. 562.
There are many types of life insurance products available in Florida. A brief description of the most common are: Credit Life: Credit life insurance is a type of decreasing term insurance associated with loan indebtedness. If an insured dies before the loan is repaid, the credit life policy will pay the balance of the loan. Prior to October 1, 2008, the maximum amount of credit life insurance could not exceed $50,000 with any one creditor. The maximum term a credit life policy could be issued was for 10 years. After October 1, 2008, the maximum amount of credit life insurance could not exceed the amount and the duration of the indebtedness. Credit life is not available for those debtors over 70 years of age, and existing credit life policies will terminate on the loan anniversary date at age 71. The borrower is not required to purchase credit life insurance. He or she may assign any other life policy or policies they own for the purpose of covering the loan. Endowments: Endowment policies provide for the payment of the face of the policy upon the death of the insured during a fixed term of years, but also the payment of the full face amount at the end of said term if the insured is still living. While not often thought of in this respect, a whole life policy is actually an endowment at age 100. If the insured is living at age 100, the policy will mature for its full face value. As with the whole life policy, endowment policies provide insurance protection against the economic loss of a premature death. Common endowment terms are five, ten, and twenty years, or to a stated age, such as 65. If the insured is living at the end of the endowment term, the insurance company will pay the face amount of the policy. Whole Life: Provides financial protection the entire lifetime of the insured, or to age 100. Premiums remain the same for the life of the insured or as long as premiums are paid. During the early years of the insurance policy the premiums are greater than the amount necessary to pay policy costs. The excess accumulates cash value in the policy to offset increased insurance costs as the insured ages, or to fund the non-forfeiture provisions of the contract. Variable Whole Life: A whole life product that incorporates investment features, designed to enhance the cash value portion of an ordinary life policy. The product was created to take advantage of investment performances that were more favorable than those of a conventional whole life policy. Modified Life: a whole life product that incorporates investment features, designed to enhance the cash value portion of an ordinary life policy. The product was created to take advantage of investment performances that were more favorable than those of a conventional whole life policy. Universal Life: an annual term life insurance policy with a side fund that accrues interest. As the cost of the term insurance increases each year, the side fund is used to offset the cost. Properly funded, this allows out-of-pocket premiums to remain level. The side fund grows based on current interest rates. When rates are high, the side funds do well, when rates are low, the side fund does not grow much. Eventually, the cost of the term insurance can grow to an amount higher than the premium and money is withdrawn from the side fund to help pay the increased cost of the term insurance. If interest remains low, the side fund may be depleted and the insured will have to increase premiums accordingly or reduce the face amount of the policy. Variable Universal Life: made up of three interlocking parts with the following exceptions:
Industrial Life: a form of life insurance, usually whole life, in which the premiums are payable on a monthly or weekly basis. Premiums are usually collected by an agent of the company. The policies usually have a face amount less than $5,000. Beginning July 1, 2021, these types of policies can no longer be sold in Florida. Term Life: provide financial protection for a temporary period of time and may or may not be renewable. They are normally written for individuals who need large amounts of coverage for specific periods of time. Most term life does not accrue cash value. Initial premiums are usually much less than permanent plans of insurance, but may increase each year or remain level for a specified period, depending on the type of term insurance.
If you read the contract for your annuity or permanent life insurance policy, you'll encounter insurance industry terms that may sound similar, but mean very different things. This list includes terms such as face value, cash value, cash surrender value, surrender cost, and account value. The differences among these concepts are sometimes small, but they can make a big difference if you need to pull money from your policy. The cash value and surrender value are not the same as the policy's face value, which is the death benefit. However, outstanding loans against the policy's cash value can reduce the total death benefit.
Cash value, or account value, is equal to the sum of money that builds inside of a cash-value–generating annuity or permanent life insurance policy. It is the money held in your account. Your insurance or annuity provider allocates some of the money you pay through premiums toward investments—such as a bond portfolio—and then credits your policy based on the performance of those investments. In the United States, it is technically illegal for a life insurance policy to market itself as an investment vehicle. Still, many policyholders use their whole life, universal life (UL), or variable universal life insurance (VUL) policies to grow tax-advantaged retirement assets.
The cash value in a permanent life insurance policy is generated using a portion of the premiums paid into the policy, plus any dividends that may be regularly credited to the policy. The cash value in a policy may be used to increase the death benefit, but you can also use the cash as so-called living benefits. These include the ability to take loans against the cash value in the policy or make partial withdrawals. As you make withdrawals, the death benefit may also reduce. In the event of a full surrender, the entire cash value is withdrawn and the policy canceled.
Term life insurance policies do not build cash value. The surrender value is the actual sum of money a policyholder will receive if they try to access the cash value of a policy. Other names include the surrender cash value or, in the case of annuities, annuity surrender value. In most whole life insurance plans, the cash value is guaranteed, but it can only be surrendered when the policy is canceled. Policyholders may borrow or withdraw a portion of their cash value for current use. In universal life insurance plans, the cash value is not guaranteed. However, after the first year, it can be partially surrendered. Often a penalty is assessed for early withdrawal of cash from a policy. In most cases, the difference between your policy's cash value and surrender value are the charges associated with early termination. Since your insurance provider doesn't want you to stop paying premiums or request an early withdrawal of funds, it often builds different fees and costs into policies to deter you from canceling your policy. The surrender fees will reduce your surrender value. These costs and the policy's surrender value can fluctuate over the life of a policy. After a certain time period, the surrender costs will no longer be in effect. At this point, your cash value and surrender value will be the same. The process through which you access your cash surrender value varies based on the policy you have, but many require that you cancel the policy before accessing the funds. Even if this is the case, it may be possible to take a loan out against the cash value in your policy.
Surrender fees are typically no longer in effect after 10 to 15 years for a whole life or universal life insurance policy. Prior to the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, people who held annuities in an employer-sponsored retirement account—such as a 401(k) plan—faced the possibility of paying surrender charges and fees in the event they changed jobs or their employer discontinued offering annuities as a retirement option. However, the SECURE Act makes annuity plans offered in a 401(k) portable. This means participants can transfer their annuity plan to another employer-sponsored plan or IRA without liquidating their annuity and paying surrender fees. Many people choose whole life insurance products that include a cash-value feature. With this feature, a portion of each monthly premium deposits into a cash account held within the policy. This cash accumulation is invested in approved funds and grows tax-free, which is the reason many policyholders use the cash account as a form of retirement account. When used this way, policyholders will often pay more than the required monthly premium to build a tax-free cash account. In 1988, the Technical and Miscellaneous Revenue Act (TAMRA) set limits on cash held in these accounts. Called the seven-year pay test, it determines if premiums paid within the first seven years of a policy's life amount to more than was required to be paid into the account. If this total is more, an account is deemed a modified endowment contract (MEC) and becomes subject to having gains from the cash account taxed as regular income. Investopedia / Sabrina Jiang Suppose you purchase a whole life insurance policy with a death benefit of $200,000. After 10 years of making consistent, on-time payments, there is $10,000 of cash value in the policy. You consult your insurance contract and see that the surrender charge after 10 years is equal to 35%. This fee means if you tried to cancel your policy after 10 years and withdraw your cash value, the insurance provider will assess a $3,500 charge to your cash value, leaving you with a surrender value of $6,500.
Cash value is the money held in your permanent life insurance or cash-value–generating annuity. It builds when your insurance or annuity provider invests some of your premium in bonds or another vehicle. You will be penalized if you tap this money early.
Say you decide to spend the money accumulated in your account. Fees will be assessed for doing so—surrender fees for accessing the money and, possibly, early withdrawal penalties. Surrender value is the amount you'll be paid once you choose to terminate the policy.
Most surrender fees go away after 10-15 years. However, policies can differ depending on the issuer so it's important to understand the issue of surrender fees before you complete your policy application and to fully read all the policy disclosures.
Generally, the cash surrender value you receive on a life insurance policy is handed over tax-free. This is because it is considered a return of premiums paid into the policy. |
How long do most states allow an insurance company to delay the payment of a cash surrender?
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