Can I Cash Out My Term Life Insurance Policy?
Term life insurance is a type of life insurance policy that does not build cash value. It is typically less expensive than permanent life insurance policies, which offer coverage for your entire life and can build cash value. There are two primary forms of permanent life insurance: whole life and universal life insurance. Whole life insurance provides guaranteed level premiums and a death benefit that stays the same for the length of the policy. On the other hand, universal life insurance offers more flexibility with fewer guarantees, allowing for adjustments to premiums within a certain range.
Cash Value Benefit
Cash value benefit is a financial asset that can be used while you’re still alive. The actual amount of cash value you build will vary based on the specific terms of your policy, and it usually takes a few years until the cash value grows to a usable sum. There are four methods for accessing the cash value in a universal or whole life policy:
|Increase Death Benefit||Accumulated cash value can increase the amount of death benefit to your beneficiaries instead.|
|Take a Loan||Take out a loan against your policy (repaying it is optional). Loans are generally provided at lower interest rates than a bank loan, do not require credit checks, and do not affect your credit rating.|
|Withdraw Cash||Withdraw some of the funds from your cash value, either in a lump sum or in payments. For both of these options, your death benefit will generally be reduced.|
|Surrender Policy||Surrender the policy altogether. This cancels the policy and the life insurance coverage that comes with it. With surrender, you may also pay taxes and fees, which can significantly reduce your cash value.|
If you have a permanent life insurance policy, then you can take cash out before your death. This will vary based on the type of policy you own, the amount of insurance you have, and how long you have had the policy. Note that there is a difference between the amount of your death benefit and the amount of your cash value.
If you are thinking about getting a universal life or whole life insurance policy, consult with a financial professional to understand what life insurance products are available for sale and to decide exactly which type of policy is right for you.