How to Read the Cash Value Table in a Life Insurance Contract, and How Surrender Value Is Calculated

The contract arrives in a thick envelope. Somewhere past the definitions and the riders, there is a page of numbers: policy years down the side, columns across the top, values that start small and grow. Most owners turn that page without stopping. It is the one page in the contract that tells you, in writing and without assumptions, what the policy will be worth if you ever need to end it.

Learning to read it changes the conversations that follow. You can check a quote from the insurer instead of taking it on trust. You can see whether an illustration's projected column is carrying most of the story. You can tell, before you borrow or withdraw, what the guaranteed value will be next year and the year after. This page shows you where the table sits, how a surrender value is built from it on any given date, and how to turn the table into a rate you can compare honestly. It is general information from a licensed insurance professional; every figure below is a round illustrative number chosen for the arithmetic, not the value of any contract, and the insurer's own figures govern yours.

Start with where to look.

Where is the cash value table, and what does it show?

It is in the contract itself. The Autorité des marchés financiers states that the method and table used to determine the cash surrender value must be included in the insurance policy. The table lists the guaranteed cash value at the end of each policy year, and often the coverage you could keep without further premiums if you stopped paying.

Look near the policy specifications, in the pages headed guaranteed values, non-forfeiture values or table of values. The first column is usually the policy year or the age of the person insured. The guaranteed cash value sits beside it. Many contracts add the amount of reduced paid-up insurance, a smaller permanent coverage the value could buy with no further premiums, and sometimes the period for which extended term insurance would keep the full amount in force. The regulator's own page on how to access the cash surrender value without cancelling your insurance lists those options.

Read the headings of each column before the numbers. Some tables show values per thousand dollars of coverage rather than in dollars. If yours does, multiply each figure by the number of thousands of coverage in your contract to get the dollar value. For example, a value of $85 per $1,000 in a contract for $250,000 is $85 multiplied by 250, or $21,250. Some tables show values at the end of each year, so a value partway through a year lies between two rows.

Keep the contract and the illustration apart in your mind. The illustration was prepared before the contract existed, to show how the policy might behave under stated assumptions. It is not a contract and it is not an offer. The table in the contract is. When the two disagree, the contract governs.

How is the surrender value worked out on a given date?

From the guaranteed value for the current year, plus whatever dividends have already added to the policy, minus whatever is owed. The guaranteed value comes from the table. The additions come from dividends already declared and applied. The deductions are any policy loan and its interest, any premium due and unpaid, and any surrender charge the contract imposes.

On a participating contract, dividends that have been declared do not disappear. Depending on the dividend option you chose, they buy paid-up additions, small blocks of fully paid insurance that carry a cash value of their own, or they sit on deposit with the insurer and earn interest. Either way, they become part of what the insurer would pay. What dividends have not yet been declared do not count; they are assumptions in an illustration, not values in a statement. And if you chose to receive your dividends in cash, they do not build up in the policy and play no part in this calculation. How each dividend option changes the contract is set out on the dividend options page, and how paid-up additions build value is explained on paid-up additions.

Illustrative example. Assume these figures on one date, all round numbers chosen for the arithmetic.

Two labels on statements cause most of the confusion. The Income Tax Act defines cash surrender value without regard to policy loans, so a statement may print $56,000 under that heading and show the $44,000 separately, often as a net amount. The cheque is the net amount. When you ask for a quote, ask for both figures, each line on its own, all as at the same date.

Why does the guaranteed column start so low?

Because the first years of a permanent policy carry its heaviest costs, and the table is built around them. The insurance itself, the medical and financial underwriting, the premium tax and the compensation of the representative who arranged the contract are all paid early. The Autorité des marchés financiers puts it plainly: "There is often no cash surrender value in the initial years."

That is not a hidden fee that will one day vanish. Many participating whole life contracts have no separate surrender charge at all; their early values are low because the guaranteed table starts low. Other kinds of contract, universal life in particular, can carry an explicit surrender charge for a set number of years. The table, read together with any surrender charge schedule in the contract, tells you which case is yours.

The useful line to find is the first year in which the guaranteed cash value reaches the total premiums you will have paid by then. Count the premiums yourself, year by year, and mark the row. Before that year, ending the contract returns less than you put in, on the guaranteed figures. After it, the guaranteed value is ahead of your cumulative premiums. A specially designed, high-cash-value, participating whole life insurance policy is designed to move that row earlier than a contract built only for the death benefit, but it does not remove the early cost. The full account of what those years pay for is on the real costs page.

What do the other columns in an illustration mean?

An illustration usually shows a guaranteed column, which matches the contract's table, and one or more projected columns that assume dividends continue at a stated scale. Guideline G6 of the Canadian Life and Health Insurance Association asks illustrations to disclose clearly which values are guaranteed and which are not, and how the non-guaranteed values may vary.

The projected columns are built on the insurer's current dividend scale, held constant for the whole period shown. The insurer does not promise to keep that scale. Its board decides each year what dividend, if any, to declare, based on the experience of its participating account. Many illustrations also show a version at a lower scale. That version shows what a change would do; the insurer does not present it as a worst case. The industry association's summary of Guideline G6 on illustrations sets out the disclosure principle.

Three rows deserve your attention before any other. The first year, where the guaranteed column sits against the premium you will pay. The year the death benefit changes, if it does, and the reason, for example a term rider that ends. And the last row, at the end of the contract. On a contract designed to run to age 100, read the final row of the guaranteed column: it shows what the contract itself provides at maturity, without any dividend assumption. Ask for an illustration that runs to that age. An illustration cut off at year 20 or 30 stops before the contract does.

Never read a projected figure without the guaranteed figure beside it. A single projected number standing alone is the defect the guideline exists to prevent. If an illustration you were shown carries only projected values, ask for the guaranteed column for the same years.

How do you turn the table into a rate you can compare?

Work out the yearly rate at which your premiums would have had to grow to equal the cash surrender value in a given year. Do it twice: once with the guaranteed value and once with the projected value. The two rates show you how much of the result rests on the contract and how much rests on dividends that are not guaranteed.

The calculation is an internal rate of return. It takes each premium on the date it was paid and finds the single yearly rate that brings all of them to the cash surrender value in the chosen year. A spreadsheet's IRR function does it in seconds if you list each premium as a negative amount and the surrender value as a positive amount in the final year.

Illustrative example. Assume a premium of $10,000 paid at the start of each year, and these values at the end of the years shown. They are invented for the arithmetic, not taken from any contract.

Read the table slowly. On these assumptions the guaranteed value has not caught up with the premiums by year 10, and by year 20 it has only just passed them. The projected column tells a stronger story, and all of the difference between the two columns depends on dividends being declared at the assumed scale every year for twenty years.

Two cautions keep the comparison honest. First, a policy is insurance, not an investment. Every year in that table, a death benefit was in force, and the rate above ignores it completely. Comparing the rate with a savings product that carries no death benefit compares two different things. Why that matters is explained on life insurance is not an investment. Second, the rate on a surrender value is a before-tax figure. Ending the contract would make the part above the adjusted cost basis taxable, as the section below explains, so the amount you would keep is lower than the value in the table.

Ask the insurer, or ask your representative to ask the insurer, for the guaranteed and projected cash surrender values at years 10, 20 and 30 and at the final row. With those, you can run the calculation yourself.

What changes the figure between two statements?

The guaranteed value steps up at each policy anniversary according to the table. Dividends, when the board declares them, add paid-up additions or deposits. A policy loan, unpaid loan interest, a withdrawal or a missed premium reduces what the insurer would pay. A change to the coverage can change the table itself.

That is why a figure on an annual statement is already out of date the day after a loan, a withdrawal or an anniversary. For any decision, ask for a quote as at a stated date. How a policy loan works, what it costs and how it is taxed are on policy loans in Canada.

What do the reduced paid-up and extended term columns mean?

They show what the value could keep in force if you stopped paying premiums without ending the contract. Reduced paid-up insurance uses the value to keep a smaller permanent coverage with no further premiums. Extended term insurance uses it to keep the full coverage, less any loan, for a limited period that the table states, often in years and days.

The Autorité des marchés financiers lists these choices, together with a policy loan, among the ways to use a cash surrender value without simply cashing it in. They exist for the moment when a premium becomes too heavy, and they are worth knowing before that moment arrives, because many contracts apply one of them by default, or make an automatic premium loan, when a premium is missed. Which default your contract uses is written in its non-forfeiture provisions.

Read the two columns as a trade between amount and time. Reduced paid-up keeps coverage for life, at a lower amount that the table shows for each year. Extended term keeps the full amount, but only until the date the table gives, after which nothing remains. A policy loan outstanding reduces both, because the value available to buy the new coverage is the value after the loan.

Illustrative example. Suppose a contract with a death benefit of $500,000 and a table that shows, for year 15, a reduced paid-up amount of $180,000 and an extended term period of 22 years. Stopping premiums that year and choosing reduced paid-up would keep $180,000 of permanent coverage with nothing more to pay. Choosing extended term would keep $500,000 for 22 years and then end. These figures are invented for the comparison and come from no contract; your own table gives your own figures.

Neither choice is a small decision. Each changes the coverage for good, and the contract sets the time within which you can choose and whether you can return to the original contract later. Ask the insurer, in writing, for both figures as at the date you are considering, how any loan is treated, and whether anything would be reported for tax. Then decide with your family, and with your accountant if a corporation owns the contract.

Is the value in the table taxable?

Not while it stays inside an exempt policy. Tax arises when you dispose of an interest in the policy: a surrender, a withdrawal or a policy loan. The part of the proceeds above the adjusted cost basis is then income for that year, under subsection 148(1) of the Income Tax Act, taxed at your marginal rate rather than as a capital gain.

The table does not show the adjusted cost basis. The basis starts with the premiums paid and is reduced over time, among other things by the yearly net cost of the insurance and by earlier loans and withdrawals, so on a long-held policy it can be much lower than the premiums you remember paying. Only the insurer holds every element of it. Ask for it in writing, as at the same date as your quote. The rules for a full surrender are set out on the cash surrender value page, and the rules for loans on when a policy loan becomes taxable. Both are written for the federal section 148 of the Income Tax Act; Quebec residents report on their Quebec return as well.

Which questions should you put to the insurer?

Ask for figures, in writing, as at one stated date. Five requests answer most of what an owner needs to know about the table and the value behind it.

1. The guaranteed cash surrender value at years 3, 5, 10, 20 and 30, and at the final row. Put the total premiums paid by each of those years beside it.
2. Whether the contract has a surrender charge. If it does, ask for its schedule, year by year.
3. A surrender quote, line by line. It should show the guaranteed value, the value of paid-up additions and any dividends on deposit. It should then show any loan and interest, any premium due and any charge, and finally the net amount.
4. The adjusted cost basis. Ask too for the amount the insurer would report as income if the contract were surrendered on that date.
5. The same projection at the current dividend scale and at a lower scale. Each should carry the guaranteed column beside it and run to the end of the contract.

Keep each answer with the contract. The next time a decision depends on the value, you will be comparing a fresh quote with a record rather than with a memory.

What this page will not tell you

It will not tell you the value of your own contract. Every figure above is invented to make the arithmetic visible, and the values that apply to you are in your contract's table and in the insurer's dated quotes. It will not tell you what dividends will be declared; nobody can, and dividends are never guaranteed.

It will not tell you how a surrender or a withdrawal would affect your own tax. That depends on your adjusted cost basis, your other income and the year, and it is for your accountant to confirm from the insurer's figures. The guarantees in the table are guarantees of the insurer that issued the contract; Assuris protects policyholders within limits if a member insurer fails. The rest of what permanent coverage does, year by year, is gathered in whole life insurance in Canada.

Who this does not suit

Reading the table well does not make a permanent policy right for everyone. If you may need the money within a few years, the early rows of the guaranteed column will usually show values below what you paid, and a savings account or a registered plan may suit that need better.

If the premium already strains your budget, the table will not fix that. A permanent policy rewards the owner who keeps paying for decades, and its first rows are the price of entry. Read the table before you sign, not after, and decide with the guaranteed column in front of you.