It is very likely to have rung a million times in your ears that Life insurance is a necessity, especially when you are the breadwinner of your family. And if anything goes wrong with you, a life insurance plan will help to secure the financial needs – groceries, children’s college education, mortgage, and more – of your family. To get cash from your Life Insurance policy, there are key ways revealed here that help you stay afloat during a financial crisis.
As a policyholder, you can tap into the cash-value life insurance for diverse reasons which may include building a nest egg for retirement. Benefits derived from cash-value life insurance policies which are also known as permanent life insurance can be a cash-value accumulation during the lifetime of the policyholder or death.
Oftentimes when you get stuck in a financial situation, your life insurance policy may not be the first few options you consider to rescue the situation. Especially since the reason you bought it, is to help make provision for your family after your demise. But now that you are here and unable to sort your bills, what happens?
Taking advantage of a permanent life insurance policy, such as whole life, could be your saving grace in certain situations. But deducting cash from your policy could heighten the burden of tax on you and in return leave your family in a tasteless financial situation after your demise. However, being able to access the cash value of a whole life insurance policy could an option to consider when you find yourself in a financial bind.
Does My Life Insurance Policy Have Cash Value?
It is important to note that it is not all life insurance policies have cash tucked in. You’ll need your life insurance policy to be a permanent policy to be able to get cash out. This is such as whole life insurance which has built cash value over a period of time.
Term life insurance is quite affordable, but it doesn’t fit in. The insurance policy has a limited time with no cash value – you can not withdraw cash from this type of policy. Permanent life insurance generally requires more costs unlike term life, however, a part of the premium goes into an investment account that may be on benefit.
Aside from the most common permanent policy type – Whole life insurance which is also known as ordinary or straight life insurance – universal life, indexed universal life, and variable universal life may also have a real cash value.
Creating cash value for your insurance policy can be likened to nurturing a savings account with small deposits over a period of time. Hence, if your policy is fresh, it is not yet likely to be of much cash value. You’ll basically be required to pay premiums for so many years before having sufficient cash value to be regarded valuable.
It is also important to note that your policy cash value could be far lower than the cost of insurance your purchased or your entirely paid premiums. And if you are able to grow your whole life’s policy’s cash value with no disturbance, then the death advantage of the policy should be attained, which may not be realized until you clock 100.
Ways To Capture The Cash Value Of Your Life Insurance Policy
1. Pay Life Insurance Premiums
If you are able to pull together a good sum of cash value, you can harness it to sort premium payments which are also known as being “paid-up”. And you know what? You only really need to ask your insurance company to be offered this request. This can help your make a savings of up to $2000 and even more in premiums annually.
2. Cover Your Premium
Perhaps you need cash to settle bills, and your life insurance premium is also one of those bills, then you may choose to avoid making out-of-pocket premium payments on your whole life policy. You can cover your premiums using the cash value to secure your policy while the situation subsides.
3. Completely Surrender The Policy
You may choose to entirely cancel your life insurance policy and get the surrender value. This is the deduction of any fees from the cash value. But going the route means that your family will no longer get a death benefit when you die and you too will not be covered by the insurance policy.
You may also be required to make a penalty payment for cashing out early. But it depends on how long the policy has been secured. This option may be a very bad choice except you are certainly sure you want to do it. You could even owe tax on that gain if your payout exceeds the premiums you paid.
4. Do A Withdrawal
This method is sometimes regarded as partial cash surrender since part of your coverage is being surrendered. You can withdraw a portion of the cash value in a whole life policy without necessarily canceling the coverage. It’s only that your family would be left with a reduced death benefit after you are gone. You will not also be in debt of income tax of withdrawals up to the amount of the premiums you have paid into the policy.
5. Borrow From Your Policy
There are several policies that permit you to borrow against the cash value. This option may be much easier for you since there are a flexible repayment timetable and no credit check unlike applying for a loan. Life insurance loans generally require repayment with interests at a certain point. And if perchance you die before the payment is made or fully made, the debt will be deducted from the benefit that your family will get.
6. Nurture Your Nest Egg
Recently, cash-value life insurance policies have gained so much popularity as investors are looking to add extra income to their retirement income. So, if you have built a substantial cash value over time, these funds can be harnessed in diverse ways as assets in your retirement portfolio.
They are often guaranteed to grow tax-deferred for several years and could improve your nest egg substantially. Policyholders are mostly advised to give their policy between 10 to 15 years to nurture before using cash value for retirement income. Find out with your financial advisor or life insurance agent to see if this tactic would work for you.