Can You Spend Your Life Insurance Money?

Yes, you can spend money from certain types of life insurance policies, specifically permanent life insurance policies that accumulate cash value over time. Here’s how you can access and spend your life insurance money:

1. Borrow Against the Cash Value

With whole life, universal life, and variable life insurance policies, you can borrow money against the policy’s accumulated cash value. This is essentially a loan from your own policy, which allows you to spend the money without triggering taxes. However, the loan must be repaid, or the outstanding amount will be deducted from the death benefit when you pass away.

• You can use the borrowed money for any purpose, such as paying off debt, funding a vacation, or covering emergency expenses.
• The loan is typically tax-free, but interest is charged on the amount borrowed.
  
  

2. Withdraw from the Cash Value

You can make direct withdrawals from the cash value of your life insurance policy. This can be done without taking a loan, but withdrawing funds can reduce the death benefit that your beneficiaries will receive.

• Withdrawals can be used for various financial needs, including medical bills, home repairs, or even retirement expenses.
• The amount you can withdraw depends on how much cash value your policy has built up.
  
  

3. Surrender the Policy for Cash

If you no longer want the life insurance policy, you can surrender it entirely and receive the cash surrender value. This is the total cash value of the policy, minus any surrender fees. Once you surrender the policy, you’ll no longer have life insurance coverage, and you may owe taxes on any gains.

• This option provides you with a lump sum of money that you can spend on anything you need.
• Surrendering the policy ends the life insurance coverage, so your beneficiaries will not receive a death benefit.
  
  

4. Use Dividends (For Participating Policies)

If you have a participating whole life insurance policy, you may receive dividends from the insurer, which are a share of the company’s profits. You can choose to spend these dividends in several ways:

• Take them as cash for immediate spending.
• Use them to pay premiums or increase the policy’s cash value.
  
  

5. Policy Loans vs. Withdrawals

• Policy Loans: Do not reduce the death benefit as long as they are repaid. Interest is charged on the loan.
• Withdrawals: Reduce the death benefit but don’t require repayment. However, large withdrawals can deplete the cash value, reducing the policy’s value over time.

Yes, you can spend life insurance money from permanent policies by borrowing against the cash value, making withdrawals, or surrendering the policy. However, spending the cash value can reduce the death benefit, so it’s important to consider the long-term effects.