How to Cash in Your Life Insurance Policy

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Contributor, Benzinga
February 15, 2022

Certain life situations may force you to find the quickest way possible to come up with cash. In some instances, you can access the cash value of your life insurance policy. 

A whole life insurance policy's cash value can help you achieve your financial goals. For example, you can use the money to help during a financial emergency or pay for significant expenditures like a new home, automobile, college tuition or even start a new business. Your options are limitless.

Keep reading to learn more about cash-value life insurance and how you can cash in your life insurance policy.

Cash-Value Life Insurance Policies 

According to the Insurance Information Institute (III), there are several different types of whole life policies, and the way each policy accrues its cash value varies.

Whole Life

Your basic whole life policy is the most common type of permanent life insurance policy. The policy pays a death benefit plus earnings that go into a savings account. Your cash-value savings grow, and the company pays dividends to you based on the saving account’s earnings.

Universal Life

Universal life insurance is whole life insurance with a cash-value account you can invest to earn a money market interest rate. Once you have an investment return deposited in your account, you have a few options. 

You can use your cash value to help pay your premium if you want to skip payments for a while, or you can access your savings by making a withdrawal or taking out a loan. Just remember that taking out a loan or making a withdrawal from your policy may reduce the death benefit payment to your beneficiaries.

Variable Life

A variable life insurance policy comes with a savings account for which you can choose investments like stocks, bonds or money market accounts. By investing in more types of funds, you increase the potential savings and have more risk of your cash value and death benefit decreasing if the market performs poorly. 

Variable Universal Life

The variable universal life insurance policy is a universal and variable life insurance hybrid. You can diversify your investments for the potential of a greater return but also risk losing money. You can also adjust your premium payments and the death benefit.

How to Access Cash in Your Life Insurance 

Your life insurance policy’s main purpose is to replace your income and help your family pay for living expenses should you die unexpectedly. However, if you have an urgent need for cash, there are ways you can access the cash-value portion of your life insurance policy.

Withdraw from cash-value life insurance: Withdrawing cash from your whole life policy can help you meet immediate financial needs and is preferable to actually surrendering your life insurance policy. The amount you can withdraw will depend on your specific type of policy and policy terms set by the insurer.

Borrow: The greatest amount you can borrow from the insurer is the cash value, which can be used as collateral for a loan. The insurance company sets the interest rates for these policy loans.

Surrender: Some whole life policies allow you to surrender the policy, meaning that you can sell it back to the insurance company, and the insurer will pay you the policy's cash value. 

Life settlement: You sell your life insurance policy to a third party for a one-time cash payment in a life settlement. Whoever buys your policy is now the beneficiary and assumes the premium payments. You can expect a life settlement to be more than the policy's surrender value but less than the death benefit.

Is Life Insurance an Investment or a Death Payout?

Life insurance can be both an investment and pay out a death benefit to your beneficiaries.  Look at your life insurance as an investment, but remember you need to take some steps like:

Laddering: You can purchase different policies that mature or expire at different times. One policy might be the emergency one, and the other is the one you would never sell. Different policies expire when you have a life insurance ladder. It can be good to buy a large life insurance policy to cover all of your needs at some point.

Investing: With variable and universal life insurance policies, you have investment opportunities to earn at the current market value rate. Then, if the market does well, you’ve built yourself a considerable nest egg for retirement, a new home, college education expense, or other financial needs. 

Return of Premium: When purchasing life insurance, always opt for a return of premium policy so you have a cash-back option. Review the policy terms before buying a policy to ensure you are getting the most beneficial type of life insurance for your financial situation.

How Does Cashing Out Affect Your Death Benefit?

Cashing out, withdrawing, surrendering or taking out a loan impacts the life insurance death benefit. Remember that accessing the policy’s cash value could mean you’ll be significantly reducing the death benefit your beneficiaries receive after you die. 

Compare Life Insurance Policies

You want to choose a life insurance company that will provide you with the highest return on your investment and the most cash-value options possible. Benzinga has compiled a list of the best life insurance companies for you to consider. You can use the list below to begin your search for life insurance.

Is Cash-Value Life Insurance Right For You?

Whether a cash-value life insurance policy is the right choice for you depends on your unique financial situation and, ultimately, the reason you want life insurance. For example, if your sole goal is to provide income for your family after you die, a basic whole life insurance policy may be the right choice. However, if you want to build up a cash value that you can borrow from or add back to your policy, cash-value life insurance may be worth considering. 

Frequently Asked Questions


Is it wise to cash in a life insurance policy?


If you have no other choice but to use your life insurance policy for emergency funds, withdraw or borrow money instead of surrendering your policy. Most experts advise policyholders to wait 10 to 15 years before withdrawing cash value for income during retirement. If you are unsure, schedule a consultation with your life insurance agent to discuss your options.


Who gets the cash value in a life insurance policy?


You can borrow against the cash value in your policy while you are living. However, unless you obtained a policy rider that specifies that your beneficiary receives both the death benefit and the cash-value portion of your life insurance policy, the life insurance company will absorb the cash value after you die. Examine your policy to discover what it covers. If you add this rider to your policy, it will increase your life insurance premium payments.