How Do You Get Money From Your Life Insurance?

My best friend and ex recently reminded me that I need to take care of life insurance, beyond a communal one and a policy tied to my house, but frankly I'm clueless about this. Fortunately, thanks to this post, I am just a bit more knowledgeable on the subject now.

We live our lives hoping for the best, and we often believe that nothing can go wrong, which unfortunately isn’t very realistic. Things do go wrong. And that is something you need to be prepared for, or else you will needlessly suffer the consequences. The best way to be prepared is having insurance, whether that is a car, health, and/or more importantly, life insurance –– which is crucial if you are providing for a family as it will help secure them financially if you are gone. Still, even if and when you do get life insurance, things might not go wrong, not in terms of dying anyway. You might face some financial troubles that need an immediate solution. Well, in that case, you can get money from your life insurance, but how do you do that?

Increasing the death benefit

In case you didn’t already know, the death benefit is the amount of money your beneficiaries would get in case you –– the insured –– die. They are obviously not subject to income tax, and your beneficiaries will most likely receive the money as a one-time payment. A good strategy to make some extra money off your life insurance policy is to increase that death benefit. This is obviously money you will not be using, but you will be leaving a larger amount of money to your beneficiaries, which is always a good thing to ensure their financial security. You can do that by calling your insurance company and asking them to increase your death benefit in exchange for the cash value on the policy.

Selling the policy

The most obvious way to get money from a life insurance policy is the obvious one, selling it, or in other words, surrendering the policy for its cash value. If you do that, you are basically canceling your insurance policy. As you can see on, you will need to calculate the current value of your insurance policy before you do anything, and a lot of factors go into that one. For instance, your age factors into the value of the policy –– the older you are, the more valuable it will be. Your sex also plays into the equation, because men have shorter life expectancies than women, so their policies’ cash value is often higher. There are several other factors that will play into this, and you will need to consider it from all angles if you want to get some good money from your life insurance policy.

Withdrawing money from the cash value

This is basically the middle ground between selling the policy and keeping it at a loss while you need money. You can make a withdrawal from the cash value of your life insurance policy, and it is often tax-free. This is unless your withdrawal is more than the amount of money you have put into the cash value of your policy thus far. If that is the case, your withdrawal will probably be taxed as income. You should know, though, that this is not the perfect solution that it seems to be. When you make a withdrawal from the insurance’s value, this reduces the death benefit that your beneficiaries would get if you die, so it is definitely something to keep in mind.

Taking out a loan

Yes, that is also an option. If your policy cash value is at a decent amount, you can take a loan against your policy. It is actually a pretty good option because a lot of insurance companies offer those cash value loans at lower interest rates than the one you would get at an average bank, which is definitely welcomed. It goes without saying that you are not forced to pay back the money since you are basically borrowing from your own money, but that would also mean the death benefit would be reduced. So, it is often best that you pay the loan back when your financial affairs are doing better.

Paying premiums

While this isn’t exactly getting you money, it definitely is saving you quite a lot. After some time of accumulating cash value, you can start tapping into that money to pay for your premiums if and when you are short on cash. You will find that most insurance companies will help you do that to make your life a bit easier, but you need to contact them to understand how exactly that works.

As you can see, it is quite possible to get money from life insurance policies, but you need to carefully weigh your different options. Each option has its pros and cons, and eventually, the decision is yours to make.

Penniless Parenting

Mommy, wife, writer, baker, chef, crafter, sewer, teacher, babysitter, cleaning lady, penny pincher, frugal gal

Previous Post Next Post