How to cash out your life insurance policy • Benzinga

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Certain life situations may require you to find the fastest possible way to raise money. In some cases, you can access the cash value of your life insurance policy.

The cash value of a whole life insurance policy can help you achieve your financial goals. For example, you can use the money to help with a financial emergency or pay for big expenses like a new house, car, school fees, or even start a new business. Your options are limitless.

Keep reading to learn more about cash value life insurance and how you can cash out your life insurance policy.

Cash Value Life Insurance Policies

According to the Insurance Information Institute (III), there are several types of whole life insurance policies, and how each policy accumulates its cash value varies.

All the life

Your basic whole life policy is the most common type of permanent life insurance policy. The policy pays a death benefit plus earnings that go into a savings account. Your cash savings grow and the company pays you dividends based on the income from the savings account.

universal life

Universal life insurance is whole life insurance with a cash value account that you can invest to earn a money market rate of interest. Once you have an ROI deposited in your account, you have a few options.

You can use your cash value to help pay your premium if you want to skip payments for a while, or you can access your savings by making a withdrawal or taking out a loan. Remember that taking out a loan or making a withdrawal from your policy may reduce the death benefit payment to your beneficiaries.

Variable life

A variable life insurance policy comes with a savings account where you can choose investments like stocks, bonds or money market accounts. By investing in more types of funds, you increase potential savings and you run more risk that your cash value and death benefit will decline if the market misbehaves.

Variable universal life

The variable universal life insurance policy is a hybrid of universal and variable life insurance. You can diversify your investments for a higher potential return, but also risk losing money. You can also adjust your premium payments and death benefit.

How to access your life insurance cash

The main purpose of your life insurance policy is to replace your income and help your family with living expenses if you die unexpectedly. However, if you are in dire need of cash, there are ways to access the cash value portion of your life insurance policy.

Withdrawing life insurance with cash value: Withdrawing cash from your whole life insurance policy can help you meet your immediate financial needs and is preferable to cashing out your life insurance policy. The amount you can withdraw will depend on your specific type of policy and the policy conditions set by the insurer.

To borrow: The highest amount you can borrow from the insurer is the cash value, which can be used as collateral for a loan. The insurance company sets the interest rates for these policy loans.

Abandonment: Some whole life policies allow you to surrender the policy, which means you can sell it back to the insurance company, and the insurer will pay you the cash value of the policy.

Life settlement: You sell your life insurance policy to a third party for a one-time cash payment as part of a life settlement. Whoever buys your policy is now the beneficiary and pays the premiums. You can expect a lifetime settlement to be greater than the cash value of the policy, but less than the death benefit.

Is life insurance an investment or a payout in the event of death?

Life insurance can be both an investment and pay a death benefit to your beneficiaries. Think of your life insurance as an investment, but remember that you need to take certain steps such as:

Ladder : You can buy different policies that mature or expire at different times. One policy could be the emergency one, and the other is the one you would never sell. Different policies expire when you have a life insurance ladder. It may be a good idea to take out a large life insurance policy to cover all your needs at one time.

Invest: With variable and universal life insurance policies, you have the opportunity to earn money at the current market value rate. Then, if the market is doing well, you’ve built up a sizable nest egg for retirement, a new home, college tuition, or other financial needs.

Premium refund: When buying life insurance, always opt for a premium refund policy so that you have a refund option. Review the policy terms before purchasing a policy to ensure you get the best type of life insurance for your financial situation.

How does cashing out affect your death benefit?

The collection, withdrawal, redemption or subscription of a loan affects the death benefit of life insurance. Remember that access to the cash value of the policy could mean that you will significantly reduce the death benefit your beneficiaries will receive after your death.

Compare life insurance policies

You want to choose a life insurance company that will give you the highest return on your investment and the most cash value options possible. Benzinga has compiled a list of the best life insurance companies to consider. You can use the list below to start your search for life insurance.

Is cash life insurance right for you?

Whether a cash value life insurance policy is the right choice for you depends on your unique financial situation and, ultimately, why you want life insurance. For example, if your only goal is to provide income for your family after you die, a basic whole life insurance policy may be the right choice. However, if you want to build cash value that you can borrow or add to your policy, cash value life insurance may be worth considering.

Frequently Asked Questions

Does it make sense to cash out a life insurance policy?

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Does it make sense to cash out a life insurance policy?

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Janet Hunt, insurance agent

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If you have no choice but to use your life insurance policy for emergency funds, withdraw or borrow money instead of surrendering your policy. Most experts advise policyholders to wait 10 to 15 years before withdrawing cash value for income during retirement. If you are unsure, schedule a consultation with your life insurance agent to discuss your options.

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Who gets the cash value of a life insurance policy?

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Who gets the cash value of a life insurance policy?

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Janet Hunt, insurance agent

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You can borrow against the cash value of your policy while you live. However, unless you have obtained a policy endorsement stating that your beneficiary receives both the death benefit and the cash value portion of your life insurance policy, the life insurance company will absorb the cash value after your death. Examine your policy to find out what it covers. If you add this endorsement to your policy, it will increase your life insurance premium payments.

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