How to Access the Cash Value of your Whole Life Policy
The cash value of your whole life policy can be a quick and easy source of money in an emergency situation. You use your cash value to make a down payment on a home purchase or to help pay for college tuition. Every personal situation is unique, and the details of accessing cash value funds are complex, it’s probably best to talk with an insurance agent to help you decide what option might be best for you.
4 Ways To Access Your Whole Life Policy Cash Value
- Surrender the policy – A surrender is essentially a cancellation of your policy (you’ll no longer be covered by life insurance), you’ll receive the amount in the cash-value account, minus any loans or unpaid premiums.
- Use cash value for premiums – If you come up short of cash, you may be able to stop paying the premiums and, instead, allocate the cash value of your policy to cover them. However if you end up depleting the funds in the cash value account entirely, it can cause your policy to lapse, which would end your life insurance coverage altogether.
- Make a withdrawal – You can usually make a tax-free withdrawal up to the amount you’ve already paid into the cash-value portion of your policy, If your withdrawal exceeds that amount, it’ll be taxed as income, In either case, the death benefit is reduced by the amount that you withdraw.
- Take out a loan – You can typically borrow up to the total cash value on your policy (that would include the portion of your paid premiums that have been designated for the cash value account, along with any accrued interest on those funds). The loan isn’t considered taxable income, and, since you’re borrowing against your own money, it doesn’t affect your credit report. If you die before you repay the loan, however, the outstanding amount is subtracted from your death benefit. Until you pay the loan back, you’re continually accumulating interest on it, which can eat away at your potential death benefit.