A universal life insurance policy has two primary values. The first is the face value of the policy and the second is the accumulated cash value. The Cash value of the policy grows according to the amount of your premiums and the performance of the investments, while the face value remains constant throughout the duration of the policy. When you pass away, the cash value and face value are combined, forming a payout of the total net value of the policy.
If you decide to cash in a universal life insurance policy, you are entitled to the cash value of the policy, but not the face value. Since the cash value is actually your own money to begin with, it belongs to you even if the policy is terminated. The face value is not yours and will never pay to you. It is designed to be paid after your demise to your named beneficiaries. Since that is the only amount of the policy you have a living claim to, it is considered the net value if the policy is cashed out, as opposed to what the net value would be if you passed away.
When the policy is canceled, any money that you have borrowed against the cash value is immediately due and payable. The insurance company will deduct that amount from the value before you receive any payments. Depending on the age of the policy and any clauses written into the contract, you may also have to pay early termination fees. The insurance company can do this because they have invested in the policy under the assumption that you will live for an estimated number of years and continue to pay your premiums until that time. By canceling the policy, you are effectively defaulting the policy, and most insurance companies have the right to penalize you for this if the policy is less than a specific period of time, usually 10 to 15 years.