Life insurance is a significant financial commitment that many overlook when thinking about their retirement. A life insurance policy can not only protect your family in the event of your death but can also provide additional sources of retirement income later on. Moreover, if you were to face an unexpected financial emergency, your life insurance policy could be a source of funds that you could use to take care of any debts you may have incurred.
Depending on your life insurance policy, you may be able to withdraw funds from the policy while you are still alive. Generally, withdrawing money from a life insurance policy is referred to as a cash-out of the policy. If you decide you want to cash out a life insurance policy, there are several ways to do this. Read on to learn how!
Companies offer two common types of life insurance policies: whole life insurance and term life insurance. With whole life insurance, you are paying for a policy meant to provide a lifetime of coverage. It is also known as the permanent life insurance policy. If you have a permanent policy, you can cash in your policy at any time.
On the other hand, with term life insurance, you are paying for a term-length policy that is only active for a specific time. If you only need coverage for a certain period, this may be a great option for you. After a pre-determined amount of time, the term policy expires and is no longer active. If you have a term life policy, you will not be able to cash out the policy until its expiration date is reached.
Therefore, if at any point you might consider withdrawing funds, you should go with a permanent policy. However, it can be a costly option.
Building cash value takes some financial planning and a disciplined approach. Make sure to maximize your contributions and build up your cash reserve over time if you opt for a permanent life insurance policy before the withdrawal.
Here are some ways to access life insurance funds early:
A surrender fee is a percentage or flat dollar amount deducted from the policyholder’s account when the policy is surrendered for cash before the end of a specified period. You will not be able to continue paying premiums on the policy once the surrender fees are assessed. If the policy is new, the fees can be high, so consider when to cash in your life insurance policy.
Some life insurance companies offer the option of taking out a loan on the policy’s value upon death or at an earlier date if the policy has a loan provision. By taking out a loan against your life insurance policy, you can access a portion of the death benefit right away and avoid paying surrender fees on your policy. However, you should consider the interest you will pay on this loan. The longer you have the loan, the higher your interest payments will be.
Some policies allow you to use premium payments. This way, you get to keep your coverage plan intact. However, this type of cash-out method is usually only available for senior policyholders who are near retirement. This retirement option is less common than borrowing against your policy, so you may need to take other steps to access your policy’s cash value if you need it sooner.
If you need help with life insurance in Houston, Texas, our life insurance agents at Franklin Life & Annuity can help!
Contact us today to learn more about us and our policies.