Life Insurance Surrender Value

Find out what surrender values are and what your alternatives in Australia are today with Savvy.

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, updated on July 10th, 2023       

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Life insurance policies with surrender values were popular with individuals in Australia for a long time. However, with the introduction of mandatory superannuation for most workers and the popularity of term life insurance, many Australians today may not have heard of a surrender value.

You can find out more about what surrender values are and how they used to work right here with Savvy's informative guide. You can also learn about what the modern-day alternatives are to a life insurance policy with a surrender value with us today.

What is a life insurance surrender value?

A life insurance surrender value refers to the amount of money you could get if you decided to surrender your whole life insurance policy before it matured or before you passed away. Essentially, it was the cash value of your policy.

The surrender value is calculated based on several factors, including the amount of money you’ve paid in premiums, the length of time you’ve held the policy and the type of policy you have. If you surrendered your whole life insurance policy, you’d receive the surrender value minus any fees or charges which may have applied.

Surrendering your policy meant you’d no longer have life insurance coverage, so you wouldn’t receive any further benefits if you passed away in the event you already cashed in your policy.

Can I still buy life insurance with a surrender value in Australia?

No – in Australia, traditional whole life insurance policies which offer a guaranteed death benefit and a cash value component have been phased out and are no longer offered by insurance companies. This occurred in the 1990s with the advent of compulsory superannuation, which replaced the requirement for senior Australians to rely on their whole life insurance policy for funds after their retirement.

These days, Australians can choose from other types of life insurance policies, such as term life insurance, which do not have a cash value or surrender value component. Term life insurance provides coverage for a specified period and pays out a lump sum to the beneficiaries if the policyholder passes away during the term.

There's no element of term life insurance which enables the policyholder to cash in their policy, with benefits only paid out upon their death or terminal illness diagnosis (or critical illness or permanent disablement if you have trauma or total and permanent disability cover, respectively, subject to your insurer’s terms and conditions).

It's important to note, however, that if you purchased a whole life insurance policy before they were phased out, it may still be active. This may mean that you’re still able to cash in your policy’s value when you choose to in addition to your other investments, such as superannuation. Check with your insurer if you're unsure about whether your policy is still active.

What are my alternatives to a life insurance policy with a surrender value in Australia?

Although life insurance policies with surrender values are no longer sold in Australia, there’s a range of alternatives you can look at to fulfil the same purpose. These include:

  • Superannuation: superannuation is a retirement savings plan which is mandatory for most Australian workers. Your employer contributes a percentage of your salary into your superannuation account, which you can access once you retire or reach your preservation age. This is essentially a replacement for whole life insurance policies with surrender values. You can also take out life insurance through your superannuation, although these policies tend to come with different limits and conditions compared to those purchased from an insurer.
  • Term life insurance: as mentioned, term life insurance doesn’t have a surrender value, so it isn’t a replacement for a surrender value. However, it’s generally more affordable than what whole life insurance was, which means you can purchase more coverage for a lower premium. Additionally, there’s a more diverse range of life insurance types to choose from.
  • Savings accounts: a savings account is a simple and low-risk way to save money. While the interest rates are generally lower than what you can earn with other investments, your money remains safe and easily accessible. These can include high-interest savings accounts and term deposits.
  • Investments: if you’re looking for another way to grow your money over time, there are several other types of investments available, including shares and property. However, these are higher-risk strategies than utilising a high-interest savings account, although returns may be greater in some cases.

Ultimately, you’ll likely utilise more than one of the above options. As mentioned, superannuation is compulsory in most cases if you’re employed, so you may wish to use that in conjunction with another investment strategy. Taking out a life insurance policy on top of these may provide you and your beneficiaries with a further safety blanket and additional funds if you pass away.

With superannuation, savings and a life insurance policy, you may feel that you’ll have enough money to live on if you retire and give to your family if you pass away. However, each person’s circumstances are different, so it’s worth assessing your situation to determine which options are most suitable for you and your family.

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Savvy does not compare all life insurance policies or providers currently operating in the market. Any advice presented above or on other pages is general in nature and doesn’t consider your personal or business objectives, needs or finances. It’s always important to consider whether advice is suitable for you before purchasing an insurance policy.

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