If you are having some money troubles in your life and are looking for some quick cash, your life insurance policy might not even cross your mind as a source of money. In this article, I am going to highlight different ways that you can use the cash value of your life insurance if you are in need of some cash.
Surrender the Policy
If you are in need of money and you have no other option than to tap into your life insurance cash value, you can cancel your life insurance anytime and receive the surrender value. Your surrender value is the current cash value of your life insurance minus any fees that are deducted from the total.
However, while you might receive your money, there are lots of downsides to choosing this option. First of all, you won’t be covered by life insurance anymore, which means that you will be relinquishing any death benefits that your heirs were to receive from the policy when you die.
Moreover, depending on how long you have had the policy, you are also going to be charged with a surrender fee for cashing out early. So, think long and hard before you cash out life insurance and only do it if there is no other option.
Make a Withdrawal
If you don’t need a large sum of cash, there is an option to withdraw a part of your cash value from your life insurance without canceling the entire policy. Your withdrawal amount depends on the size of your policy and the size of your cash value, so you must look into it beforehand.
Unlike surrendering the policy to receive the money, making a withdrawal reduces the death benefit you die, which means that the heirs receive a smaller amount of money since you are only surrendering a part of your coverage.
However, if you make such withdrawals, again and again, they could significantly chip away most of the death benefits or even eat away your policy altogether.
Borrow From the Policy
An interesting way you could get cash from your life insurance policy is to use it as a hedge fund to borrow money, just like you would borrow money from a lender or a bank. In case you borrow money from the policy, your death benefit would be used as collateral if you don’t pay back in time, and the amount owed to your heirs will be reduced.
Borrowing money against your life insurance is easier than borrowing from banks in most cases, as you don’t have to go through the process of verification again. With no credit check, background check, and flexible repayment time, it is the best loan option you could go for.
However, you will be expected to pay back the money you borrowed within a set time period with an added interest before you die, or else money will be deducted from your death benefit.
Cover Your Premium
Last but not least, if you are having financial troubles in your life and you can’t pay for your life insurance premiums along with other expenses, a smart decision is to use the cash value of your life insurance policy to pay for the premiums for a while.
If you opt to pay out your premiums with your cash value, you won’t have to deal with these premiums for some time, and you can get back on your feet and weather a financial storm. Once you have successfully managed to do that, you can return to making normal payments.