If you’ve been diligent in maintaining a life insurance policy for many years, there is a good chance that the policy itself has accrued some very solid value. However, there is also the chance that you have changed your mind about holding on to it, and perhaps, in the face of an emergency, your family needs that financial assistance now. If you are ready to terminate your policy, you may be curious about your options. Here, we will take a look at some of the things you can do with a life insurance policy you don’t need.
Cash Withdrawal Options
Before you completely terminate or surrender your life insurance policy, it’s important to note that, much like a savings account, withdrawals are possible. Depending upon the type of policy you have, simply notifying your insurance company of your financial need should prompt a check on their behalf, and the amount will be deducted from your life insurance. Yes, it really is that simple. However, there is an important disclaimer with drawing out the cash: be prepared, as various states have different fees, and interest hikes or a possible increase to your premium monthly payments is more than likely.
Your licensed provider will dictate those new terms, and if you can’t afford them, your policy will be surrendered. Additionally, if the value of your insurance policy has grown to a point where it exceeds the premium payment, then the amount you draw can be taxed as part of your annual income.
Selling Your Life Insurance Policy
There could be any number of reasons why you’re looking to get out of your policy. If you’re facing a terminal illness and need additional income for an in-home caregiver, medications, or extensive medical bills, the money may be important to meet those financial needs. There is also the possibility that as a homeowner, you’ve assessed the value of your home and have decided to sell it in exchange for a new home or condo in a retirement community. If that’s the case, the policy money could pay for an extensive landscaping project, new lawn, outdoor kitchen installation in the backyard, or other renovation to increase your home’s curb appeal. Any one of these variables could require financial assistance. In that scenario, you could consider selling your life insurance policy outright, rather than taking out a withdrawal.
There are reputable companies, such as American Life Fund, that can assist you in the sale of your life insurance. Even a cursory glance at americanlifefund.com can show how common it is for policyholders to sell their insurance in exchange for a lump sum of needed financial assistance. This is known as a viatical settlement. Here, a third party acts as buyers for the policy for an even exchange. As is the case with cash withdrawals, however, there are viatical settlement regulations to keep in mind: generally, the policy-holder must have a terminal illness or a chronic illness, such as a cancer diagnosis, with a life expectancy of under two years. For this, the viatical settlement process may require a doctor’s diagnosis and other personal information.
Quite simply, end of life expenses can take their toll, especially on family members, and a viatical settlement company can prove to be the best way in aiding all sorts of financial burdens. Viatical settlement transactions also do away with some of the fussy fees and often fetch more money upfront than a withdrawal or policy termination.
Collateral for a Loan
If you want to avoid the fees associated with cashing out your insurance policy or are not ready for a viatical settlement, there is a somewhat “happy medium” solution: using your life insurance cash value as the collateral for a loan. Of the three options, this one tends to be the most popular with policyholders who have a poor credit history, as a loan doesn’t come with any underwriting requirements. Additionally, there are no maintenance costs and this type of loan doesn’t have to be paid back (although the life insurance policy itself will have a lessened value). be aware that your insurance company will, most likely, charge interest on the loan amount and you will be responsible for paying that upfront or using the remainder of the policy’s value. On the plus side, all loan amounts are tax-free!