Can You Get Cash For Your Life Insurance Policy?
Times, you might be looking at your life insurance policy as one way to do that.
You might be asking yourself: is it really possible to get quick cash through your life insurance policy? If so, how much?
The answer is: yes! There are multiple ways to get cash for your life insurance policy. However, you should know that not all options are made equal and one option may be more advantageous than another, depending on your personal circumstance. This is why it is always best to consider every option that may be available to you.
In this article, we’ll help you do your research so you understand how to get the most cash possible from your life insurance policy.
Surrender the Policy –
One such way of getting immediate cash for your life insurance policy is to opt for a cash surrender. This is essentially canceling the policy and receiving a refund of the policy account value, minus any surrender changes. However, keep in mind that not all policies provide a surrender value. And you may have more valuable options to consider. For these reasons alone, we recommend that you take a look at the other options available if you need cash now.
Make a Withdrawal
Particularly if you have a whole life policy, it is possible that you could make a withdrawal for a limited amount of cash. Typically, you may be able to withdraw a portion of what you’ve paid for in premiums tax-free, but you will be taxed on any gains that you withdraw.
This strategy can be useful if you need a small amount of cash now, but keep in mind you will be reducing the total death benefit available to your beneficiaries.
If you don’t want to make a withdrawal and reduce your death benefit, you could borrow from the policy instead and then work on paying it back.
Borrow From the Policy
Another such option for many policies is the ability to borrow against the cash value. In fact, it may even be easier for you to borrow against your life insurance than to get a loan elsewhere simply because there’s no credit check and you’ll have a more flexible timetable for repayment.
Life insurance loans do come with interest, so you’ll want to keep it in mind to pay it off as soon as you can. If your death benefit is paid out before you finish paying off the loan, the loan will be deducted from the total benefit paid to your beneficiaries.
Skip Premium Payments
If you’re looking for a little extra help paying the bills, one such option is using your cash value to pay for premium payments. This option is typically only available for universal or whole life policies with a positive account value. Do not attempt this strategy without first checking with the life insurance company to make sure there is enough value in the policy to skip a payment. Skipping payments, of course, is at best a short term strategy and will eventually lead to the policy going into a grace period and lapse status.
Skipping a payment will save you a little extra cash on the out-of-pocket premium payments, but it is only a temporary strategy and iit may not give you the amount of cash you need right now.
Choose a Life Settlement
If you’re looking for the largest amount of cash immediately, then perhaps the best option is to go for a life settlement.
A life settlement occurs when you sell your life insurance policy to a third party for a lump sum amount of cash. The third party assumes the premium payments and will receive any death benefit. If you qualify, the payment amount is always an amount greater than the surrender value of the policy.
We see policyholders opt for life settlements for a number of reasons, such as financial troubles or beneficiaries no longer needing protection. Life settlements minimum requirements are generally an insured 65 years or older and a policy death benefit of $100,000 or more. An insured with a very serious or terminal illness may be qualified for a viatical settlement.
Should you be concerned that you’re giving up your death benefit?
Life insurance is a valuable financial planning tool, typically purchased to protect loved ones against an untimely loss of the insured. Certainly, keeping a life insurance policy in-force has its advantages. Only those who no longer have a need for the insurance protection or who have had a change in financial priorities should consider lapse, surrender or life settlements.
If you are considering lapse or surrender, consider too a life settlement. By opting for a life settlement, you’ll no longer have to make premium payments or even deal with with your insurance company – and you may have access to a much larger amount of money than if you choose a cash surrender.
Of course, with every option, there are pros and cons to be weighed. The most important factors to consider before you make any decision are:
- Has your financial situation or priorities changed, making the policy unaffordable?
- Have circumstances and the need for insurance coverage changed over the years?
- Do you need liquidity, or cash now?
- Does your policy have a surrender value?
- Are you eligible for a life settlement?
After all of the appropriate factors are weighed, you’ll be able to make the best decision for you and your family. Whether you opt for a life settlement or something else, know that there are possibly multiple options available to you if you no longer need or cannot afford your policy.