Legal Definitions - policy value

Policy value refers to the amount of money an insurance policyholder is entitled to receive if they choose to terminate or cancel certain types of insurance policies before an insured event occurs or the policy matures. This value typically accumulates over time within policies that have a savings or investment component, such as whole life or universal life insurance, and represents the cash accessible upon surrender.

• Individual Retirement Planning:

  After paying premiums for twenty years on a whole life insurance policy, Elena decides to downsize her home and needs additional funds for renovations. She contacts her insurance company to cancel the policy. The cash amount she receives from the insurer upon this cancellation is her policy value, which she then uses to help fund her home improvements.

• Unexpected Financial Needs:

  David has a universal life insurance policy that has been in force for fifteen years. He suddenly faces a significant, unexpected medical expense not covered by his health insurance. To cover the cost, David decides to surrender his universal life policy. The lump sum payment he receives from the insurance company after surrendering the policy represents its policy value, providing him with the necessary funds.

• Business Succession Planning:

  A small technology startup purchased a key person whole life insurance policy on its co-founder, Sarah, to protect the business in case of her untimely death. Ten years later, Sarah decides to retire from the company, and the business no longer needs the specific coverage. The company's board votes to surrender the policy. The cash amount the business receives from the insurer is the policy value, which can then be reinvested into the company's operations.