How to get money out of a Life Insurance Policy
There are three ways to get money out of a life insurance policy:
If you have an in force policy and:
You withdraw your cash value:
Obtain money via direct withdrawal from your life insurance policy. Keep in mind that if you choose to go this route to withdraw cash value from your life insurance policy, you may be responsible for the payment of any taxes based on the part of the withdrawal that is greater than premium payments made during the life of the policy. For example, if you have $2,000 in cash value as a part of your life insurance policy and your premium payments total $1,000, you would be able to withdraw $1,000 or less without tax. However, if you chose to take out more than $1,000, you would have to pay taxes on the amount that you withdraw. Surrender fees may apply.
You borrow against your cash value
Obtain a loan against the life insurance policy. Acquiring a loan means that you do not pay taxes at the time of the withdrawal. Keep in mind that if there is any lapse in the life insurance policy coverage, you may need to come up with the money to pay the taxes on the portion of the cash value that is greater than your premium payment amount.
Surrender fees may apply.
You sell your life insurance policy
The owner (viator) of the life insurance policy sells the policy for an immediate cash benefit.
The buyer (the viatical settlement provider) becomes the new owner of the life insurance policy, pays future premiums, and collects the death benefit when the insured dies.
At one time, most viatical settlements were from people with a life-threatening illness. Now, individuals who are not facing a health crisis may sell their life insurance policies to get cash.