Can I cash in part of my life insurance?

Many people wonder whether they can access funds from their life insurance policy while still alive. The answer depends on the type of life insurance policy you have. Typically, whole life and universal life policies offer options for cashing in a portion, while term life insurance does not.

Types of Life Insurance Policies You Can Cash In

1. Whole Life Insurance:
   Whole life insurance builds up cash value over time, which can be accessed in several ways. You can either borrow against the cash value or make withdrawals. Both methods allow you to tap into your policy’s cash reserve, though withdrawing reduces the death benefit for your beneficiaries.

2. Universal Life Insurance:
   Like whole life, universal life insurance accumulates cash value over time. This policy offers more flexibility, allowing policyholders to adjust premiums and death benefits. You can also withdraw or borrow from the cash value.
   
   

Methods to Cash In Part of Your Life Insurance

1. Policy Loans:
   You can borrow money from the cash value of your policy. These loans typically have lower interest rates than traditional loans. The advantage is that your death benefit stays intact, as long as you repay the loan. However, if unpaid, the loan amount will be deducted from your death benefit.

2. Withdrawals:
   You can make a direct withdrawal from your policy’s cash value. However, this reduces the death benefit. Withdrawals are typically tax-free up to the amount you have paid in premiums.

3. Surrendering the Policy:
   If you no longer need the coverage, you can surrender your life insurance policy and receive its cash surrender value. This is a final option, as it cancels your coverage, and taxes may apply to the amount exceeding your paid premiums.

4. Living Benefits:
   Some life insurance policies provide living benefits if you’re diagnosed with a terminal or chronic illness. You may be able to access a portion of your death benefit early to cover medical costs or other expenses.
   
   

Factors to Consider

• Taxes: Cash withdrawals beyond your paid premiums are subject to income tax.
• Impact on Beneficiaries: Any withdrawals or unpaid loans reduce the death benefit your beneficiaries receive.
• Surrender Charges: Early withdrawals or surrendering your policy might involve fees.

Accessing part of your life insurance policy can provide financial flexibility, especially in times of need. However, it’s important to understand how it affects your policy’s death benefit and whether there are tax implications. At Toby Hansen Insurance Agency, we can help you navigate the complexities of life insurance and ensure you make the best decision for your needs. Contact us today to learn more about the options available to you!