Many people ask one common question related to life cash value life insurance policies- what is the cash value of a life insurance policy? Cash value life insurance policies are the kind of policies that provide a death benefit to the beneficiary as well as accumulate cash value in another account. So, for a cash value life insurance policy, every time the policyholder pays for the premium, the cost is divided into the death benefit, company fees for coverage, and finally some cash value in an account within the policy. This makes the cash value life insurance premiums quite expensive.
Since the cash value goes into a different account that is separate from the death benefit, the beneficiary does not receive the cash value once the policyholder passes away. This cash value is technically meant for the policyholder to claim when he sells his policy. However, when the policyholder dies, the beneficiary gets the death benefit, and the cash value goes to the insurance company.
Furthermore, when you let the policy lapse, you wouldn’t get the cash value, and your beneficiary won’t get the death benefit either. This is why people decide to cash out their life insurance policy. With that said, here’s how you can cash out your life insurance policy.
USE THE CASH VALUE OF THE POLICY FOR PREMIUMS
When you have life insurance policies like variable and universal life policy, you can pay off your premiums using the cash value of the policy. However, make sure that you keep track of your cash value. The cash value should be so much that it doesn’t drop too much. Because when the cash value drops, you might end up losing your coverage. So, when your cash value is consistent, you can stay covered with minimal cost.
SELL YOUR POLICY FOR A LIFE SETTLEMENT
When the premiums are too high, and you no longer need the policy, you can also consider a life settlement. What is the cash value of a life insurance policy in a life settlement? Basically, it’s the compensation you get when you sell your life insurance policy. As a policyholder, you sell your life insurance policy to a third party and get instant cash in exchange. Once your policy is sold, the buyer pays for the premiums and the death benefit gets transferred to the buyer from your beneficiary. However, besides the cash value of the policy, you also get some additional cash, which makes the value of a life settlement greater than the surrender value of the policy but still less than the death benefit.
SURRENDER THE POLICY FOR NET CASH VALUE
One thing that people mostly do when they no longer need their policy is to surrender the policy to an insurance company and get some surrender value. In case of cash out life insurance policies, if you ask what is the cash value of a life insurance policy, what you get as the surrender value is actually the cash value of your policy. However, you won’t be getting the total accumulated cash value as a whole. This is because a certain amount of the cash value goes into fees and surrender charges. However, if your policy has been covering you for a decade or two, the net cash value that you get would be equal or quite close to the total accumulated cash value.
TAKE LIFE INSURANCE POLICY LOANS
You can also get a loan using the cash value of your policy as collateral. Whether you want to invest in a new property, buy a new car, or meet urgent medical expenses, loaning on your policy’s cash value can be a good idea. Furthermore, the loan can be kept outstanding for as long as you desire to keep it. However, if you pass away before you pay off the loan, the money is deducted from the death benefit. Thus, the beneficiary wouldn’t receive the original death benefit value.
These are some of the ways of cashing out your life insurance policy. Since there are so many ways to cash out your life insurance policy, you can talk to a financial advisor and find out what way would be best for you. Furthermore, it also matters whether you would want to get rid of your policy completely or still have it. While many people think of life insurance policies only from the perspective that they keep the policyholder covered, they can also serve as a financial aid when the policyholder needs cash.