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Whole life insurance becomes a cash asset over time — and once you have enough cash in your account, you can dip into that fund. If you’re struggling to cover your bills and living expenses during the coronavirus, you may be able to rely on your whole life policy to help.
Potentially. Like all permanent policies, whole life insurance builds cash value over time. When you’ve accumulated enough cash value, you can treat the cash value component of your policy as a flexible savings account — which means you can borrow from it whenever you need.
Many policyholders use their cash value to fund large purchases — but you’re also free to use it to cover basic living expenses, like your mortgage or other bills.
Yes. The same principle applies here — if you have the cash value, you’re free to use it to cover business expenses.
The money could help you:
The benefits of cash value life insurance
Every time you pay your premium, a portion goes toward the cost of your life insurance coverage, and a portion is typically invested to give your policy a cash value. That cash value grows on a tax-deferred basis, and earns interest at a fixed rate set by your insurer.
Once you’ve accumulated enough cash value, you can borrow against your policy. You won’t be taxed on your withdrawal, and the interest rates are typically low — making it a more appealing option than a conventional loan in some cases.
There are a few caveats to tapping into your cash value.
Because of these caveats, it’s a good idea to treat your whole life policy as an emergency savings account — and pay back any money you borrow as soon as you can.
You’ll need to contact your insurance company.
Once your insurer approves the cash value loan, they’ll transfer the funds for you to use however you wish.
You can use your cash value to pay your premium. If you’re with a mutual life insurance company, you can dip into any dividends you’ve earned.
Don’t have access to those funds? Your insurance company is legally required to give you a grace period to make up a missed premium payment. It typically lasts 30 or 31 days.
If you know you won’t be able to pay your premium within that timeframe, contact your life insurance company as soon as possible to explain your financial situation. Many state insurance departments have instructed insurers to help policyholders dealing with financial hardship during the coronavirus. Your insurer may waive late fees or offer you a longer deadline or flexible payment plan.
As a permanent policyholder, you can withdraw money or take out a loan against your policy. But in some cases, it might make sense to surrender your policy and collect the cash.
You could consider surrendering your policy if you need liquid cash and:
By doing this, you’ll cancel your coverage, and you may have to pay taxes or surrender fees. Your beneficiaries won’t receive a death benefit, either — so carefully weigh your options before going ahead with a policy surrender.
Your whole life insurance policy can be a financial lifeline in times of hardship. But you’ll need to meet certain criteria before you can borrow against your policy, and you run the risk of denying your beneficiaries a death benefit.
If you’re struggling to cover your bills during the coronavirus, read the fine print of your life insurance policy to explore your options.
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