Life insurance policies are designed to take care of your loved ones after youre gone, right?
But universal and whole life allow you to cash in your life insurance while youre still alive.
But just because you’ve got the option to cash in your life insurance doesnt mean you should.
If youre thinking about cashing in your life insurance, read these tips first.
It includes both a death benefit and cash value.
But cashing in that value isnt always a good idea.
Here are some things to consider before you make that choice.
Cashing it out wont be an option if you have term life.
However, the way interest is accrued influences how much money youll earn over time.
You wont pay taxes on the amount you contributed to the policy.
However, you will need to report any proceeds at tax time.
This is sometimes costly to older adults whove paid a significant amount into their policies.
Our team has compiled alist of creative waysyou can fatten your bank account this week.
This is a long list, so dont get overwhelmed.
Well keep it updated as offers changes or expire.
David Johnston, managing partner atAmwell Ridge Wealth Management, has a potential alternative for older adults.
That covers expenses related to things like nursing home care.
Taking funds out of that policy will leave less behind for your survivors.
That might mean sitting down with family members and explaining the situation.
In that case, the decision could be a little easier.
Surrender Fees
Accredited financial counselor and chartered retirement planning counselorLisa Whitleyhas another warning for those thinking of cashing in.
A surrender fee is a percentage insurers charge when they allow you to cash in your policy.
This fee will be detailed in your policy, so you should be able to find it fairly easily.
When added to anyincome taxesyoull pay, you may find that fees reduce your payout substantially.
There are a few others, though.
Here are some to consider.
Youll have to repay the borrowed funds, with interest, as you would with any personal loan.
You could take out a home equity loan, for instance, or a second mortgage.
You may not even need collateral to get a personal loan.
Reduced Paid Up Option
Fernandez has another alternative that can work for some older policyholders.
This is called thereduced paid up option.
The funds in your policy will be labeled paid up and rest there until you die.
This can free up a little extra money in your monthly budget.
It keeps their family protected but saves them from paying the monthly premium.
Before making that move, though, research the taxes and fees youll pay.
You may find that an alternative option costs less and gets similar results.
Stephanie Faris is a professional finance writer with more than a decade of experience.
It sounds appealing right?
Check it out here!
