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Whole Life and Cash Value
Although there are different kinds of whole life, they all accrue a cash value. This makes them different from term insurance.
The cash value of whole life is cash you can potentially access while you are still alive. You do not need to kick the bucket to access this value. With a term policy, it only pays anything upon the demise of the insured.
However, it does take some time to accrue cash value. This is not a situation where you buy it one day and the next day it magically is worth big bucks. But, if you have had it a few years, it likely has accrued some cash value.
Learn more about the cash value of your policy and make sure to use our free comparison tool above. Just enter your zip code and get a quote today!
It May Look Like a Lot of Money
Depending on various factors, such as how long you have had it and how high the premiums are, the cash value can be quite substantial. And, yes, you can potentially cash it out.
If you get into a pickle financially, this cash value can look very tempting. You can think “This is the answer to my problems!”
The Reason People Get Whole Life
But, cashing in your whole life policy is basically the same thing as canceling the policy. This potentially leaves your loved ones without the financial protection you wanted for them when you chose to get the policy.
If the cash value is substantially less than the coverage value of the policy, this may a bad trade, so to speak. You may be throwing away guaranteed funds that your loved ones will need later for short term gain.
After all, the primary purpose of whole life is to make sure you stay covered. That is the main reason it gets chosen over term life.
Term coverage is typically less expensive but does not stay in force for your whole life. It ends when the term of coverage ends. The fact that whole life stays in force your whole life is where the name of it comes from.
So, while cash value is nice, it isn’t really the reason people purchase whole life. Guaranteed coverage is the reason they purchase it. As you get older, this gets both harder to find and more expensive to get new.
Borrowing is an Option
If you do not actually want to cancel the policy, borrowing may be a better option for you. So, let’s talk a bit about how borrowing against your policy works.
It’s Sort of Like a Savings Account
Did you know that you can basically borrow at will from your cash value amount? It’s true. It is your money and you don’t need anyone’s approval for using it.
Borrowing against the cash value is a bit like taking money out of your savings account. You just need to fill out forms stating you want to borrow it, just like you would fill out forms at the bank to withdraw money from savings. But there is no approval process.
Unlike most loans, you do not need to explain to anyone why you want it. You do not need to justify borrowing it. No one will judge you.
Having Your Cake and Eating It Too
So, if you are considering cashing in your policy due to a short-term cash flow problem, borrowing against it may be a better option for you. That way the policy is still in force, thus you still have life insurance coverage should the worst come to pass.
There is no repayment schedule. You will need to stay on top of how much you owe and some other details. The interest rate is typically pretty low.
You should learn more about borrowing against the cash value before you do so, but it is usually going to be a better answer than outright cashing in the policy. It will let you access the cash value while keeping the policy so you still have coverage.
If borrowing does not make sense, there may be other options that do make sense. For example, you may want to trade the policy for a long-term care policy.
This may make sense if you are in the draw down phase. In other words, if you are seriously ill and going through all your assets due to serious health problems, you may be expecting to apply for Medicaid in the near future.
In such circumstances, turning your whole life policy into a long-term care policy may be the best decision.
You may also be able to trade it for an annuity or sell it to a life settlement company.
Do your research and find out all possible options before you decide to simply cash it in. Once you cash it in, it is gone.
That is not the time to find out there was some other option that would have made more sense for you and your loved ones.
When in Doubt, Ask Someone
Insurance is complicated stuff. It can confuse anyone, no matter how smart or educated.
So, if you really do not understand all your options, it might be wise to talk to an expert. It is better to ask questions before you make any decisions or take any actions rather than after.
The exact details of your situation will significantly impact what the best answer is for you personally. Thus, talking to an expert may be the single best thing you can do.
That is the best way to stumble across an answer to a question you didn’t even know you needed to ask. if they know their stuff, they will know what questions to ask you to get at the heart of the matter.
The Cash-Out Process
If you do decide to cash out your policy, the process is simple enough. You may already have the form you need in with your insurance policy. If you do not, you can request one from the company.
Once you fill it out and send it in, it may take a few weeks to get your money. It will probably come as a check in the mail.
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