How Can You Get Money from Your Life Insurance Policy?
As a rule, life insurance policies only pay out a benefit once the policyholder passes away. When the policyholder dies, a benefit (as agreed upon on the policy) will be paid to the surviving beneficiaries. In some cases, however, the policyholder may be able to withdraw money while they are and the policy is active.
The Difference in Life Insurance Policies
Not all life insurance policies allow you to withdraw money. Term life insurance policies do not allow the policyholder to receive cash value while the policy is active.
A whole life insurance policy is the type of policy which you might be able to withdraw cash from. If you wish to withdraw money from your policy, contact your insurer to discuss how much you would like to take out. This can only be done after premiums have been paid on your life insurance policy. This is because, when you pay your life insurance premium, the money is split three ways: the cost of insurance, fees, and cash value. The cash value category of your life insurance policy is the category from which you may withdraw money. It may not always be as lucrative as you would hope, however.
Are There Penalties for Taking Cash Out of a Life Insurance Policy?
There aren’t generally immediate penalties for withdrawing money from your life insurance policy. Many policyholders may do this if they are tight on funds or need extra cash for an unexpected expense. It’s recommended that you withdraw with caution, though. Most of the time, a cash value part of a life insurance policy is separate from the benefits your beneficiaries may receive. This means that if you take money out of your life insurance policy, it should not affect how much compensation your beneficiaries will receive at the end of the policy.
The rate of growth on a cash value policy is slow. Cash value policies can also be more expensive, so you could be paying expensive premiums for a few years before you see any benefit. On a whole life insurance policy, the cash value builds at a fixed rate as dictated by the insurance provider. This cash value is generally tax-deferred and designed to grow to the size of the policy’s death benefit once it has matured (which is usually when the policyholder turns 100 years old).
Contact our life insurance agents today if you have any questions about your policy or you can fill out an online form here.