Can Life Insurance Be Used to Get Cash?
Most people think life insurance is for your loved ones. Life insurance offers financial care and protection in the event of your death – and it can help cover all kinds of expenses during one of the most stressful experiences for survivors and dependents. But few people realize that life insurance can actually offer so many more benefits.
Life insurance can help you secure your loved ones’ financial future. And you can choose from a number of different options, including different types of life insurance with flexible requirements. You can also get cash out of your life insurance policy while you’re alive.
If you’re looking to get more from your life insurance policy, here are a few different ways you can actually take cash from your policy.
Surrender Your Policy
If you’re interested in getting rid of your life insurance policy, you can get its cash value. You just need to decide to surrender your policy.
When you surrender your policy, your life insurance provider gives you the net cash value of your policy. The net cash value of your life insurance policy is typically lower during the first years of your coverage – there are fees, and you’ll even pay surrender charges if you want to surrender your policy too early.
However, if you’ve kept your life insurance policy for 10 or more years, the net cash value can actually be a lot of money. It’s typically close or equal to the value of your policy, meaning surrendering your policy would give you cash in the amount of your life insurance’s value.
Sell Your Policy
Instead of surrendering your life insurance policy and giving it up entirely, you can also get cash by choosing to sell your policy.
Selling your life insurance policy means you’ll give up your coverage. Typically, a broker will pair you with a company to handle the sale. And while that company will take a percentage for the sale, you’ll likely wind up with more money for selling your policy than you would if you surrendered it.
When you sell your life insurance policy to another company, they’ll take over your premium payments and become the beneficiary. You will no longer have to worry about the policy – and you’ll get cash for doing so.
Withdraw the Cash Value
Don’t want to get rid of your life insurance policy? You can keep the policy and still get cash from it. Withdrawing the policy’s cash value is one way to do this.
You’re able to withdraw a portion of your life insurance policy’s cash value. Here’s how it works for different types of life insurance:
- Variable or Universal Life Insurance: Withdrawing a portion of the policy’s cash value is possible, as long as you don’t withdraw more than you’ve paid premiums on. You can only withdraw a certain amount based on how long you’ve had the policy.
- Whole Life Insurance: You can withdraw some of your policy’s cash value. However, the death benefit will be reduced by more than the amount you withdraw.
When you withdraw some of the cash value, keep in mind that it does affect your policy and beneficiaries. It does give you cash, but it will reduce the death benefit. That means your spouse and children will get a lesser amount when you pass away.
Borrow Against Your Policy’s Cash Value
Another option for those who don’t want to give up their life insurance policies but still want to take cash out? You can actually borrow money against the cash value of the policy.
If your life insurance policy has enough value, you can take a loan out against that value. Most life insurance companies offer cash value loans – and the interest rates are often lower than what you’d get at a bank.
The biggest benefit of borrowing against your life insurance policy’s cash value is that you don’t have to pay back the loan. There’s no obligation to repay what you owe. If you don’t repay it, it’ll simply be deducted from the death benefit once you pass away.
Annuitize Your Policy
You can get a steady stream of income from your life insurance policy. All you have to do is annuitize your policy.
Life insurance companies offer annuities as a unique type of insurance – insurance against outliving your income. If you don’t have enough income as an older, retired adult, you can annuitize your life insurance policy. And that’s kind of like turning it into a reverse mortgage.
When you annuitize your life insurance policy, you’ll get a guaranteed monthly payment until you die. And those payments can be set up to continue even if they exceed the value of your policy. You’re essentially taking the value of your policy out while you’re still alive and using that money however you’d like.
Take Dividends Out in Cash
When you purchase a life insurance policy, you’re responsible for paying premiums. And sometimes, you wind up paying more than you should. If that has happened to you, you can actually get that money back in the form of dividends – dividends that can be taken out of your policy as cash.
Typically, dividends are only earned on whole life insurance policies. If you’ve accumulated dividends in your life insurance policy, you can put them to use in a few different ways:
- Lower your future premiums.
- Put the money into savings with the insurance company.
- Increase your insurance.
- Take the money out as cash.
If you’ve gotten dividends, you have to specifically ask your insurance company to give them to you as cash. You’ll need to ask to receive a check, and then you’ll be free to use that money however you’d like.
Maximize the Value of Your Life Insurance
Whether you currently have life insurance or are still considering different options, it’s important to know just how much value this type of insurance can have. Not only will it offer peace of mind and protection for your loved ones, but it will also provide opportunities for extra funds or ways to utilize the policy’s value.
And if you’re hoping to get the most value, or worth, out of life insurance, it’s important to get a policy early. The longer you have a policy, the more value it’ll accumulate. So, taking action to find the right life insurance right now will only benefit you even more later in life.