Most families consider taking out universal life insurance at some point because
it helps protect your loved ones after you’ve gone. Of course, if you’re single then this might not be so appropriate for you. Either way, if you opt for a whole life insurance policy then you’ll generate a cash value which is viewed as an asset. This asset then gives you a cash surrender value payout if you decide to cancel or terminate your policy. However, there are some other options to access the cash value of your life insurance policy before you cancel it.
What is your Cash Surrender Value ?
Essentially, the surrender value cash is the total money you get when you terminate your life insurance policy. There are a few more nuances to this situation though, as detailed below:
- Surrender or cancel your life insurance policy
- No longer get death benefits
- Term versus whole life insurance policy
Surrender or Cancel your Life Insurance Policy
If you have a term life insurance policy then you won’t get a payout from your insurance company when you cancel it. That’s because it doesn’t have a cash value sum associated with it as does a whole or permanent life insurance. Sometimes you can convert a term life insurance policy but that will depend on your insurer and your policy’s details.
Term versus Whole Life Insurance Policy
You can cancel both types of life insurance policy if you need to stop dealing with premium payments. This approach can also be a way to generate some extra cash because you receive what’s known as the cash surrender value if you have a whole life insurance policy. Essentially, you surrender the value of life insurance meaning you give up on your death benefits.
No Longer get Death Benefits
Life circumstances often change and you might no longer need to support any beneficiaries anymore with your life insurance policy. If that’s the case then selling your policy, known as a life settlement, might be the best option for you. Regardless, you might still want to review the other options before you go for a life settlement that are described further below.
How to Get More than Just Cash Surrender Value
As suggested, there are a few things you can do with your life insurance policy to provide you with an income, as detailed below:
- Withdraw from your cash value
- Take out a loan on your life insurance policy
- Get dividends as cash
- Sell your life insurance policy
Withdraw from your Cash Value
If you have a whole life insurance policy then your premium payments go to build up your cash value or to pay the cost of insuring you whilst also covering your fees. The cash value that builds up over time though is there for you to access like any other money asset. The great news is that it’s also not taxable as long as you don’t take out above it. Any interest or other amount above your cash value will be taxable. Although, that’s still a certain about of non-taxable cash that you can receive.
Take out a loan on your Life Insurance Policy
As mentioned, your cash value is an asset so you can borrow against that value. Although, you can also borrow against the final death benefit payout. The details of the loan will depend on how long you’ve had your life insurance policy as well as your insurer’s requirements to satisfy the overall level of risk you present to them.
Get Dividends as Cash
Many life insurance policies have dividends paid out to their policyholders based on the insurer’s company profits. Essentially, by contributing your premium payments you’re also supporting the overall cash flow and profit margins of the company so making it possible for them to pay you dividends. Each insurer will be different as well as how and when you can withdraw those dividends. The best approach is therefore to compare a few different companies before you start a permanent life insurance policy.
Sell your life insurance policy
A final option is to sell your life insurance policy, often referred to as a life settlement. You can expect to get a greater payout than your cash surrender value. Although, naturally, it will be less than the expected death benefit.
There are a few requirements before you can arrange a life settlement. These include being at least 70 years old and having a policy that’s older than 2 years. Regardless, your insurer can advise and so can a life settlement broker or provider. They will then calculate the overall value of life insurance so as to be able to offer you a buying price greater than the value cash surrender.
Final Recommendations for Generating Income from Life Insurance Policy
The first thing to note is that you need to hold a whole life insurance policy or convert your term life insurance policy. That’s because you’re capitalizing on the cash value that’s generated from your premium payments. Essentially, you’re either withdrawing those funds or borrowing against them or against the death benefit payout.
Depending on your situation though, you might realize that you no longer need a death benefit payout. In that case, you can opt for a life settlement. This is still more beneficial than simply canceling or surrendering your life insurance policy. That’s because a life settlement company will always offer to pay your policy for more than your cash surrender value.
In terms of next steps now though, first talk to your insurer to understand the overall value of your policy and what your immediate options are. You can then easily find a life settlement broker if that’s your preferred option. Either way, maximize your life insurance policy to suit your current needs and life circumstances.