If you find yourself absolutely in dire straits, it is possible to “cash in” a life insurance policy. Doing so will, in effect, cancel that life insurance policy. It also will give you access to the money that is locked up in the policy. This is a “point of no return” kind of decision, but it may be helpful, in certain circumstances. There also may be the potential for you to take out a loan on the life insurance policy.
Considering the time, money, and effort that goes into getting approved for a life insurance policy, it seems kind of crazy to turn around and cancel it. There is paperwork to be filled out, telephone interviews with a lot of health questions for you to answer, and even a physical exam to be taken. That is a lot!
Right now, I have two life insurance policies. One I recently got from my insurance agent, and it fits my needs much better than the original policy I had from another insurance company. I have been considering cashing out that first policy, that isn’t as useful to me as it once was.
How do you do this? First, you need to make sure that your life insurance policy is a whole life, or universal life, policy. You also need to have been paying premiums on that policy for at least a few years. The cash value of a policy grows every time you pay a premium, and every time your policy is credited with a percentage of interest.
Do you want to surrender, or completely cash in, this policy? If so, you can get whatever the surrender value happens to be. Keep in mind that some policies will have an accumulation value that is larger than the surrender value. If your policy has one, then the surrender value amount will be subtracted from the accumulation value before you get anything. The cash you get from surrendering a policy comes to you tax free, unless it is more than the dollar amount you spent on premiums. Anything beyond that, you will be taxed on. If you don’t want to close the policy, you can do a “partial withdrawal”. This is sort of like taking out a loan from the policy, except that there is no specific date it must be repaid. In this case, you continue to have a life insurance policy.
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