Did you know you can sell all or a portion of a life insurance policy, even term insurance?
(4 minute read)
As we enter the summer months coming out of the pandemic, many grandparents are feeling the loss of family time with their children and grandchildren. In 2020, most families were not able to spend time together or create positive, lasting memories. With travel restrictions lifting, many grandparents may be looking for ways to take their grandchildren on a family vacation to be able to make up for lost time.
However, family vacations can come with a hefty price tag, especially if you are wanting to create memories that will last a lifetime. One solution that you might turn to is cashing in an unwanted or unneeded life insurance policy in order to afford this important family experience.
What is the cash value of a life insurance policy?
You may be wondering, “how much money could I gain from cashing in?” and “how do I find the cash value of my life insurance policy?” The money you will gain from cashing in your life insurance policy depends on the type of policy you have, and the kind of action you take to get the money out of your policy.
Whole life, universal, variable universal, and indexed universal life insurance policies may include a cash value feature. In order to access that money, there are a few different approaches you can take:
Take Out a Loan on Your Policy
You can typically borrow up to the cash value of your policy in order to get a quick influx of cash. However, if you die before you repay the loan, the outstanding amount is subtracted from your death benefit. Another potential downside is that until you pay the loan off, this debt accrues interest which can also decrease your policy’s potential death benefit.
Surrender Your Life Insurance Policy for its Cash Value
Surrendering your life insurance policy is basically cancelling your policy to get the amount you’ve paid into the cash value of your account plus accrued interest. The downsides of this approach are the possibility of your insurer subtracting funds for any loans or unpaid premiums and potential surrender fees.
Get a Life Settlement
A life settlement is the sale of an existing insurance policy to the secondary market. You will receive a one-time cash payment, and the purchaser becomes the policy’s beneficiary and assumes payment of its premiums. This option works well for policies that you don’t want or need and can give you the influx of cash you need to create those memories. If you would like to retain your life insurance coverage, there are life settlements that sell only part of your policy so you retain some benefits.
The amount you receive could range from 4-8 times the cash surrender value when selling your policy, and depends on a variety of factors. The face value of the policy is the primary factor, and these can range from $100,000 to multi-million dollar policies. Other factors that impact the final payout include:
- Life expectancy of the insured
- Amount of premiums that will have to be paid to keep the policy in force
- Cash surrender value of the policy
- Type of policy
- Rating of the insurance carrier
Is there a penalty for cashing out life insurance?
It depends on the way that you cash out your life insurance and the type of policy that you hold. You may have to pay income tax or be charged fees for accessing your money, but an experienced advisor can help you navigate those fees. In any scenario, a tax professional should be consulted for tax-related guidance before and after a life settlement is finalized.
How long does it take to cash out a life insurance policy?
Cashing out a life insurance policy can be a quick and painless transaction. The money you put into your life insurance policy is yours, and you can access that money if you want to. At Life Settlement Advisors, we can work with you to get your money and turn a non-liquid asset into a liquid asset.
Is it a good idea to cash in a life insurance policy?
Here at Life Settlement Advisors we have dedicated ourselves to helping families make empowered choices with their investments. Making the decision to cash in on a life insurance policy doesn’t necessarily mean taking a huge loss. A life settlement can help policy holders sell their part of their life insurance similar to how you would sell a car, a house, or stocks and bonds. We can work with you to determine what is right for you and your family.
For some people, this decision is the right one. For others, the factors involved may not make financial sense. To learn more about life settlements, and see if you might qualify, visit our life settlement calculator. You may soon be on your way to making those precious family memories and be able to take your grandchildren on the family vacation of your dreams. Contact us today to discuss if cashing in your life insurance policy is the right move for you.
Life Settlement Advisors