Can You Take Money Out of Your Life Insurance Policy?

Can You Take Money Out of Your Life Insurance Policy?

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It’s hard to find the cash you need for everything in life, especially in an uncertain financial and political market. It can be discouraging to work so hard for your money and still feel stretched to the limit to pay for the things you need. Not to mention the possibility of unexpected medical expenses or other emergencies, a potentiality that grows ever nearer as you age. In a tough situation, you might be in need of a quick solution. And where might you find you have additional cash on hand? In your old life insurance policy!

Don’t lose your lifelong investment. Discover your policy’s value today.

 How Can I Get Money From My Life Insurance Policy?

You can certainly take money out of your life insurance policy, and there are a few ways to do that. The first thing to realize is that if you want to take cash out of your insurance policy, this is only an option for  permanent coverage offered by a universal life or whole life policy. A term policy does not build a cash value, but nonetheless may be a source of cash.  

Here are the ways to monetize your life insurance policy to find a cash benefit today: 

  • Withdrawing from the account value of the insurance policy
  • Taking a loan from the insurance policy
  • Using your policy as collateral for a loan
  • Accelerated death benefit features
  • Surrendering your life insurance policy
  • Selling your life insurance policy for cash

If you are eligible for any of these options, you will get immediate money to spend on any expenses from medical bills to other unexpected financial needs that come up in your day to day life. 

How Can I Get Money From My Life Insurance Policy?

Withdrawing  Cash From A Life Insurance Policy

A cash withdrawal from the account value of the policy can provide needed funds.  However,  withdrawing cash could also negatively affect your policy coverage since death benefits will be reduced.  The withdrawal could also result in increased future premium.  And there may be a tax implication related to the withdrawal. For these reasons, it’s important to double check with your insurance company and tax advisor regarding any decisions.

Take a Loan from your Life Insurance Policy

In a sense, borrowing from your permanent life insurance policy is like borrowing from yourself.  The account value in a life insurance policy is akin to a savings account, with excess premium from payments being deposited in the early years and that surplus applied to premiums in the later years of coverage.  Any loan taken on the cash value will be assessed interest charges and loan payments will be built back into the required premium payments.  Should the insured pass while the loan is outstanding, the borrowed amount will simply be deducted from the death benefit.  

Using A Policy as Collateral

In some circumstances, using your policy’s death benefit  value as collateral is an option.  Typically, a life insurance policy is used as collateral in addition to other consideration and is most commonly utilized in a business scenario.  

Accelerate Death Benefits

According to the American Council of Life Insurers, you can receive accelerated benefits (i.e., cash) from your insurance policy in the case of serious disease, chronic illness, long term care in a nursing home, or long term home care due to a sudden inability to care for yourself. Each policy and life insurance company has differing qualifying criteria.  The advance amounts vary by company and can be anywhere from 25% to 95% of the death benefit.  Since this is an advance of the death benefit, generally there are not tax implications. 

Surrendering A Life Insurance Policy

If you want to surrender your life insurance policy, you can simply inform your insurer that you would to surrender and you will be provided with a check for the account value of the policy, less any charges. The surrender value may be subject to taxation and of course and canceling your coverage means that you will no longer have life insurance benefits. 

Selling A Life Insurance Policy

Selling a life insurance policy typically holds the highest payout potential. In this situation, you will sell your life insurance policy to a third party who will pay you a lump sum of cash today.  The new owner will take over the premium payments and become the new beneficiary of the policy.  There are many aspects of qualifications, but the most basic is insureds over the age of 65 with policy coverage of $100,000 or higher.  

Don’t lose your lifelong investment. Discover your policy’s value today.

 

Pros and Cons of Selling a Life Insurance Policy

Pros

  • You will receive a lump sum cash benefit today. 
  • The proceeds will be more than you would have received if you surrendered or lapsed the policy.
  • Your budget will find money because the ongoing premium expenses will be the responsibility of the new owner. 

Cons

  • You designated beneficiaries will no longer receive any benefits from the policy.  
  • Like the sale of any financial assets, there may be tax implications.
  • Not everyone qualifies – to start, you must be at least 65 with $100,000 in benefits 

FAQ On - Can You Take Money Out of Your Life Insurance Policy?

Q: Can I Sell A Term Life Insurance Policy?

One of the most popular types of insurance policies is a term life policy, in which you purchase a policy for a set term of years, many having conversions or renewal features.   This is a common option as it provides significant benefits at death but a much lower premium than permanent insurance policies. 

These policies can be sold as well, however unless the insured has serious health considerations most term policies must be convertible to a permanent like a whole life or universal life policy for a sale.  Policies have differing conversion

 

timeline rights, and your policy copy will have all of the details.  Most typically conversion rights expire when insured reaches a specific age or policy anniversary.  

Q: What is the Value of a Life Insurance Policy?

The cash value you receive from selling your policy depends on many factors including the insured’s age, health status, the benefit your policy provides as well as the ongoing cost in terms of premiums.  

Because the factors influencing the value of a life insurance policy vary so widely, so to do the actual cash values of any policy.  Settlement payouts can range from 10% to over 50% of death benefit, with the average being around  22%. 

Q: Should I Sell My Life Insurance Policy?

This article outlined several ways to find cash from a life insurance policy.  But consider selling your life insurance policy only if you are also considering discontinuing the coverage by lapsing or surrendering the policy.  A life settlement may offer significantly more value than either of those options. There is no cost to looking into your options and deciding what is best for your particular situation.  

Don’t lose your lifelong investment. Discover your policy’s value today.