By Lorenzo Billie A life insurance policy is of utmost importance in the financial protection of your loved one in case of a dire situation. But there might be occasions where liquid cash is more urgent than a life insurance policy. Liquidating your life insurance policy by cashing out is something you can consider in times like these.
When can you cash out life insurance?
There are multiple ways in which you can cash out your life insurance plan. But experts say that it shield be should be one of your last resorts. It is because a lack of life cover could prove to be difficult for your family if something very unfortunate happens and it could affect your peace of mind as well. But there could be occasions in life where the current availability of money is more important than anything else. If you ever, unfortunately, have to go through such a tough time, you can use the below methods to cash out your life insurance.
4 ways to cash out life insurance policy
1.Withdrawing your insurance policy – According to the terms and conditions of your insurer, you could have an option to withdraw a part of your life insurance policy. This means you would be withdrawing from the total money you paid as premiums. Insurance companies could charge you a fee for withdrawing and it could reduce your death benefit amount – a sum that is critical in the financial protection of your family.
Cash withdrawals can also decrease the surrender value of your insurance.
Plus, withdrawing an insurance policy that is less than 15 years old could attract taxes.
2.Surrendering your insurance policy – In withdrawals, you are only withdrawing a part of the insurance policy. At the same time, by surrendering, you can cash out the whole insurance policy. By surrendering, your life insurance policy along with the benefits will get lapsed. Just like in withdrawals, your insurance company might charge you a fee considering their terms and conditions and age of your life insurance policy. This could reduce the cash value of your life cover. Also, cancelling your insurance policy could completely nullify the potential financial protection your family has in case if something unfortunate happens to you.
3.Loan against the insurance policy – Your insurance policy carries a collateral value, and you could take out loans against it. Your interest rates will be depended on the terms and conditions of your life insurance policy. Here, there are two important things to keep in mind.
- Availability of a loan depends on your insurer’s term. You are not eligible for a loan by default.
- You should keep an eye on the repayment and interest rates. A loan will reduce the death benefit of the policy and unpaid amounts, together with the accrued interest, could reduce the cash value of your policy further,
4.Life Settlement of your insurance policy – In a life settlement method, you can sell your insurance policy to another individual or a life settlement company and cash out your life cover. Here, the new owner could continue paying the premiums and will receive the returns and could gain death benefits at the time of the demise of the insured.
In most cases, you should be above the age of 65 to qualify for life settlement.
The most important thing here is that you will not receive any benefit relating to your life insurance after you sell your insurance policy. If in case you have to, unfortunately, leave them behind, the owner of the new policy will get the death benefits and not your family.
Is cashing out a life insurance policy a good idea?
It depends on your financial condition. If you are left out with no other options, cashing out for urgent needs becomes necessary. But making sure you have a new life cover as soon as you financially can is also important. You could go for more affordable options with lesser benefits if money is an issue. You can use a life insurance calculator to figure out two important points
- What is life insurance premium of your policy?
- How much death benefits will you get with that premium?
You could also take the help of expert advisory available online to help you with finding something that is more affordable for you.
james