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Can I Cash Out a Life Insurance Policy? Here’s Everything you Need to Know

Wednesday, May 9, 2018

Life insurance can seem as a necessary evil for many people who pay a premium every month towards their policy. This feeling has been promoted by the fact that most people think that life insurance only benefits them after they pass away. However, this is not the case, since you can cash out your life insurance when required while you’re still alive.

In tough financial times, people sometimes are left scrambling for cash to meet their expenses and lifestyle demands. This is when you can cash out your existing life insurance and get rid of the financial crisis you’re dealing with. While cashing in the life insurance policy is a big decision that can have a great influence on your financial life, it could be done when absolutely necessary.

There are several possible ways in which you can cash in your life insurance policy, depending on several factors, like whether you want to keep the policy or not, amount of money that you want to access, and various other things. However, once you determine all your needs, there are basically three major ways to access the value of your life insurance policy while you’re still alive.

How to cash out a life insurance policy


cash out a life insurance policy

Tap into its cash value

Basically, life insurances come in two forms – term life insurance and permanent life insurance. Term life insurance is a cheap option when compared with the permanent life insurance. This insurance pays out the benefits once the policyholder passes away while the policy is still in effect. On the other hand, permanent life insurance is an expensive life insurance that has an investment component to it. This means that permanent life insurance allows the insurance policies to build cash value over time.

If you have a permanent life insurance and want to tap into the policy’s cash value, you can do it in three ways:

Loans – Most of the life insurance companies allow the people to take a loan from the accumulated cash value of their policy for any reason. These loans don’t have any repayment schedule like the other loans have. However, these loans will accumulate interest charges that directly affect your death benefit. This means you get less death benefit than you’re supposed to.

Withdrawals – This is a great way to cash in your premium life insurance policy. You can easily withdraw money from the cash value of your policy without needing to be worried about the interest charges. However, you need to remember that withdrawal might lead to change in the policy premiums that you pay and even can affect the life insurance benefits.

Surrender – Basically, surrendering a policy means canceling it. Once you cancel your policy, it releases all the cash value to the policyholder, which in this case is you. However, before surrendering you need to be sure that you don’t need the coverage of the policy anymore.

Getting cash out of your life insurance by tapping into its cash value is the easiest way to cash in the life insurance policy. However, it doesn’t work for the term life insurance policies, since they don’t have any cash value. So, if you ever think “can I cash in my term life insurance policy?” the answer is, no.

Apply for the living benefits

Living benefits are another way to get the cash out of your life insurance company, while you’re still alive. The living benefits basically allow you to cash in a portion of your life insurance in advance, which is in most cases usually up to 50%. However, to access these benefits there are certain criteria. You can only access these benefits in the circumstances that are listed below:

Chronic illness benefits –

Chronic illnesses, as you might know, is something that stays with you for a long time. Most of the people suffering from chronic illnesses require assistance for at least two out of all the activities that are required daily, like bathing, eating, or other things. If you’re suffering from any chronic illness that has drained you financially, you can cash out money from your life insurance as a part of the living benefits.

Long-term care benefits –

Healthcare today is a very costly affair. This is worse when you need to have it for a long time. People receiving long-term care need to shell out a great amount of money to receive the services. This is when you can cash in the life insurance. Also, there are chances of you getting additional benefits as well if you cash in life insurance for long-term care benefits.

Terminal illness benefit –

The people who are certified as terminally ill by any physicians have a life expectancy of fewer than 12 months to live. This is when they are eligible to cash in their life insurance.

While all these benefits may come standard in most of the life insurance policies, you need to make sure that you’re completely educated about them. Some policies might contain various terms and conditions that might restrict you from accessing them.

Life Settlements

Life settlements are a great way to cash in your life insurance policy, especially if you’re above the age of 65. Basically, a life settlement means selling your existing life insurance policy to a 3rd party investor in return for cash. If in case, you don’t need the death benefits linked to your insurance anymore, selling the policy is the best way to get cash from it.

Although the amount you receive is less than what you might have got as death benefits, it’s better than most of the other options listed above. When you sell your life insurance, you get more benefits than the cash surrender value, which is why it’s considered to be the best option to go for. This is a great option for people who no longer need a death benefit for supporting their family.

The best thing about life settlements is that you can find an investor for your life settlement yourself and if that doesn't work out you can also take the help of the life settlement providers. More often than not it’s recommended that you take the help of the life settlement providers to do the job for you. If you’re looking for a good life settlement provider, no need to look anywhere else. We at Harbor Life Settlements provide you great life settlement services.

While the real purpose of a life insurance is to provide death benefits to support your loved ones, that doesn’t mean that you cannot reap the benefits of your policy while you’re alive. The aforementioned ways help you cash in your life insurance policy when you need them. So, what are you waiting for? If you need cash urgently, consider any of the three options and cash in your term or permanent life insurance policy.

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