Can I cash in part of my life insurance?

Life insurance isn’t just a safety net for your loved ones—it can also be a powerful financial tool during your lifetime. If you own a permanent life insurance policy like whole or universal life, chances are it has built up cash value. That value can be accessed and used, but it’s important to understand your options and their long-term consequences.

Here’s everything you need to know to make a smart decision about cashing in your life insurance policy.

Ways to Access the Cash Value of Your Policy

1. Policy Loans

You can borrow against the cash value of your policy—no credit check required. Policy loans typically have low interest rates and flexible repayment options. However, if the loan is not repaid, the outstanding amount (plus interest) will be deducted from the death benefit. In some cases, it may even cause the policy to lapse.

2. Withdrawals

You can withdraw funds directly from your policy’s cash value. Withdrawals up to the amount you’ve paid in premiums are usually tax-free. Anything beyond that may be subject to income tax. Withdrawals will permanently reduce the policy’s death benefit.

3. Surrendering the Policy

If you no longer need the coverage, you can surrender the policy and receive its full cash surrender value. This option ends your coverage entirely and may involve surrender charges or taxes—especially if the policy is relatively new.

4. Using Cash Value to Pay Premiums

If your cash value is substantial, you can use it to cover future premiums, keeping the policy active while reducing your out-of-pocket costs.

5. Life Settlements

For those aged 65 or older, a life settlement may be a better option than surrendering the policy. In a life settlement, you sell your policy to a third party for a lump sum—often higher than the surrender value but less than the death benefit. This can provide immediate funds for retirement, medical care, or other expenses.

What to Consider Before Cashing Out

• Tax Implications: Withdrawals and settlements may be taxable.

• Loss of Coverage: Cashing in usually means losing your death benefit.

• Surrender Fees: Early surrender may trigger penalties and reduce your payout.

• Loan Risks: Unpaid policy loans with accumulating interest can lapse your policy and create tax liability.

How to Decide What’s Right for You

1. Identify Your Policy Type: Know whether you have term, whole, or universal life insurance.

2. Review Your Policy Details: Contact your insurer to understand the cash value and your available options.

3. Define Your Financial Goals: Are you looking for short-term cash or long-term security?

4. Consult a Financial Professional: A licensed advisor can help you determine the most tax-efficient and goal-aligned strategy.

Ready to See What Your Policy Is Worth?

At Toby Hansen Agency, we work with nearly 100 insurance carriers to help you unlock the true value of your life insurance. Whether you’re looking to access funds, sell your policy, or simply understand your options—we’re here to help.

Contact us today to speak with a licensed expert who will guide you every step of the way.