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There are a few ways to access the cash from your permanent life insurance policy, from taking out loans to surrendering your policy completely. But if you still want or need insurance, be careful — depending on the option you choose, you run the risk of canceling your coverage or reducing the death benefit for your beneficiaries.
A great feature of permanent life insurance is the option to borrow from the cash value of your policy. Most insurers require a minimum cash value before you can take out a loan, but after that you can borrow up to the full amount you’ve accumulated.
Low interest rates and flexible repayment terms are the perks of these policy loans. Since you’re essentially borrowing from yourself, there are no required monthly payments. However, even with low interest rates and a flexible payback schedule, your full loan needs to be paid back on time. Not paying back your full amount could result in penalties like:
If you don’t intend on paying back the loan, you can simply withdraw money from your cash value. The amount you can withdraw depends on your policy and provider, but it’s likely less than a policy loan. Withdrawals are untaxed up to the amount you’ve paid in premiums. This technique is best suited for those who need cash quick but don’t want to give up coverage or ownership. However, there are a few main drawbacks:
If you no longer need life insurance, you can surrender your policy and collect the cash. By doing this, you’ll cancel your coverage, and may run into these issues:
Another option is to sell your policy to a third party, who takes over your premium payments and ownership of the policy. This is known as a “life settlement.” You’ll likely receive less than the value of your death benefit, but more than you would from surrendering your policy.
This is ideal for policies with higher cash values. The amount you’ll receive is up to you and the third party to decide, but here are a few things to consider before selling your policy:
Permanent life insurance policies provide a lifetime of financial protection for you and your family. However, there are many reasons to cash out your life insurance policy. From financial hardships to changes in lifestyle, here’s some situations when you might consider cashing out your policy.
There are many insurance providers that are eager to accept your premium payments. Whether you found another provider with better coverage or a policy that better suits your lifestyle, sometimes there are better options out there.
If your beneficiaries have passed away or don’t rely on your financial support, you may not need coverage. Selling or surrendering your policy provides an influx of cash to help you in the later years of life.
Whether you’re buying a new home, funding a child’s education or simply need cash quick, loans, surrenders and settlements can provide funds — fast.
If you owe money, borrowing from your life insurance policy is an option to get you out of debt. Interest rates are much lower than credit cards and other types of loans, so this option may help you save money while reducing debt.
If you don’t need as much coverage or find that your premium payments are too high, you may consider cashing out of your policy. That could mean using some of your cash value to cover premiums or taking out a loan or surrendering the policy..
If you’re in need of cash but have poor credit, cashing out of a life insurance policy may be a good option. Policy loans do not require credit checks, and neither do settlements or policy surrenders.
If you’re in a pinch for cash but don’t want to sacrifice your life insurance policy, you may want to consider applying for a personal loan. Available from banks, credit unions and personal lenders, personal loans can provide quick access to funds at reasonable interest rates. As with any major financial decision, you should always consult an accountant or financial advisor to determine what’s best for your situation.
Many personal lenders like payday loan companies often partake in predatory lending practices that can cause more harm than good. Look out for high interest rates and questionable terms to avoid expensive repayments that could trap you in a cycle of debt.
Compare your options and be sure to read the fine print of any loan to understand all of the fees and terms before going with a particular lender.
There are a handful of reasons why you might consider cashing out your life insurance policy. Whether you’re in debt, making a large purchase or just don’t need as much coverage, cashing out your policy can provide financial cushioning when you need it most. Each method offers its own benefits and drawbacks, so it’s important to weigh your options or consider a personal loan. Before making a decision, you should always consult a licensed accountant or financial advisor for tailored advice.
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I have had a $15,000 term life policy with CO Bankers Life for 30 years and 5 months. I’m taking out a $20,000 whole life policy. I want to cash in my policy. How do I go about doing this and how much would I get? I’ve paid in $877 more than the policy is for.
Thank you
Hi Terry,
Thank you for getting in touch with Finder.
For a more accurate figure of how much you might get as well as the process and other related-queries, please contact your insurance provider directly. This is to make sure that you’re expecting the right amount.
I hope this helps.
Thank you and have a wonderful day!
Cheers,
Jeni
Cash surrendered account – can I avail the money back if I pay the balance of my loan cause the manager told me that its already forfeit?
Hi Romeo,
Thank you for leaving a question. This may depend on a lot of factors in your policy. If you are planning to pay the loan balance there could be a reduced payout – surrendering a policy with an outstanding loan can reduce the payout. Make sure to pay off your entire loan balance including interest so that you can get the most for your policy.
It would still be advisable to speak directly to your insurer and get the details for the policy and check all possible options for it.
Hope this helps.
Regards,
Val
Is the cash out value on the annual statement the amount I would get back
Hi Ed,
Thank you for reaching out to finder! Yes, the cash out value is the amount you will get. You may want to reach out to your lender to confirm the value you see on the statement for accuracy.
Hope this helps.
Regards,
Val
i have a foristers insurance polucy i want to surender where can i do this?
Hi Dan,
Thanks for your inquiry and for visiting our page. To surrender your Forester’s Insurance Policy, you must contact the provider directly. To find their contact details visit their website and find their contact page to get their contact details.
Hope this was helpful. Don’t hesitate to message us back if you have more questions.
Best,
Nikki