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If you're in need of cash to help cover your bills or pay for an emergency expense, you may be wondering if you can cash out your life insurance policy. Fortunately, you may be able to do so, depending on your policy type. Read on to learn how you can use your cash value to receive funds from life insurance.
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Cash value is a feature that comes with permanent life insurance policies like whole life and universal life insurance. If you have cash value life insurance, you'll pay a portion of your premium toward insuring your life and another portion toward building up the cash value. The cash value may earn tax-deferred interest.1
As long as you have a permanent life insurance policy, you may be able to tap into its cash value account. Whole, universal, and variable universal life insurance are all examples of permanent life insurance policies that will cover you for life and allow you to maintain cash value as well as a death benefit.2
Don’t wait until it’s too late. Help cover yourself and your family with coverage from Aflac.
Get StartedThere are several ways you can use the cash value from your life insurance policy while you're still alive, including:
Depending on the specifics of your life insurance policy, you may be able to take out a loan against the cash value. Since there is no credit check involved and the repayment terms are flexible, you may find it easier to get a loan from your insurance policy than from a bank, credit union, or online lender. If you cash out life insurance this way, keep in mind that any amount you owe on the loan will be deducted from the death benefit.
You may also be able to withdraw a portion of your policy's cash value. In many cases, you won't owe income tax on any withdrawals you make up to the amount of premiums you've already paid. However, any amount you withdraw that exceeds what you've already paid will likely be taxed.
If you decide to surrender your policy, you withdraw its entire cash value. This will end your coverage, and your beneficiaries will no longer be owed a death benefit when you pass away. In addition, you might be on the hook for a surrender charge or owe income taxes if your payout is higher than the premiums you paid.
Your cash value can help you out if you need money to pay your life insurance premiums. You may use it to cover out-of-pocket premium payments. This option might come in handy if you're struggling financially.
The most noteworthy benefits and drawbacks of cashing out your life insurance policy are as follows:
You won't have to go through an extensive application process or a long waiting period to collect your money. Life insurance loans offer quick funding because there is no application or credit check. The cash value in your account acts as collateral on the loan, and you can take advantage of it once you've built up enough.
Typically, you can lock in a low interest rate on a cash value loan. Depending on your policy, this may be anywhere from 5% to 8%.3 These interest rates are much lower than rates on many credit cards and personal loans.
If you cash out your life insurance policy, you'll lower your cash value or get rid of it altogether. Plus, any loan amount you don't repay will be deducted from the death benefit.
When you pay back a life insurance policy loan, you will face interest charges. In the event you borrow a significant amount and your interest exceeds your cash balance, your policy might lapse, and your insurance company may close it. You will then be stuck with a hefty tax bill.
Fortunately, you won't have to pay taxes if you withdraw up to the amount of the total premiums you paid into the policy. However, if you withdraw any gains or dividends on the policy, these amounts may be taxed as ordinary income.4
If you need to borrow funds for short-term needs, like a home improvement project or wedding, it may make sense to cash out your life insurance policy. This is particularly true if you're confident you can pay back the loan and don't mind a smaller death benefit for your beneficiaries.
If cashing out life insurance isn't right for you, here are some alternatives to consider:
Aflac offers whole life insurance that comes with cash value. You can reap the benefits of the cash value component while you’re still living, whether you want to withdraw funds or get a loan. If you're interested in a whole life insurance policy with cash value, get a quote today.
Get Started
Life insurance covers your loved ones if you pass away unexpectedly. Learn how life insurance works, what it covers, and some types of policies available.
Life insurance with cash value lets you withdraw money to cover necessary expenses. Find out how cash value savings work and the types of insurance policies offered, including whole life insurance.
Life insurance covers your loved ones if you pass away unexpectedly. Learn how life insurance works, what it covers, and some types of policies available.
Life insurance with cash value lets you withdraw money to cover necessary expenses. Find out how cash value savings work and the types of insurance policies offered, including whole life insurance.
1 Value Penguin – How Does Cash Value Life Insurance Work? Updated January 10, 2024. Accessed May 28th, 2024. https://www.valuepenguin.com/life-insurance/cash-value-life-insurance.
2 Nerdwallet – How to Get Cash from Your Life Insurance Policy. Updated January 25, 2023. Accessed May 28th, 2024. https://www.nerdwallet.com/article/insurance/getting-cash-from-life-insurance.
3 Investopedia – Understanding Life Insurance Loans. Updated August 13, 2023. Accessed May 28, 2024. https://www.investopedia.com/articles/personal-finance/121914/understanding-life-insurance-loans.asp.
4 Investopedia – Cashing in Your Life Insurance Policy. Updated August 01, 2023. Accessed May 28, 2024. https://www.investopedia.com/articles/pf/08/life-insurance-cash-in.asp.
Coverage underwritten by American Family Life Assurance Company of Columbus. In New York, coverage is underwritten by American Family Life Assurance Company of New York.
68000: In Arkansas, Idaho, Oklahoma, & Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68100-A68400. In New York, NY68100-NY68400. In Virginia, Policies ICC0965JTO & ICC0965JWO. 65000: In VA, Policies ICC0965JTO & ICC0965JWO. B61000: In AR, ID, OK, & VA Policies: ICC18B61JWO & ICC18B61JTO. In DE, Policies B61JWO, B61JTO. B6000: In AR, ID, OK, PA, TX, & VA, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Q6000 Whole: In AR, DE & OR, Policy Q60100M. In ID Policy Q60100MID. In OK, Policy Q60100MOK. Q6000 Term: In DE, Policies Q60200M. In AR, ID, OK, Policies ICC18Q60200M, ICC18Q60300C, ICC18Q60400C.
Coverage is underwritten by Tier One Insurance Company.
Final Expense: Arkansas, Delaware, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies ICC21-AFLLBL21 and ICC21-AFLRPL21; and Riders ICC21-AFLABR22, ICC21-AFLADB22, and ICC21-AFLCDR22. Aflac Final Expense policies are not available in New York.
Aflac Final Expense insurance coverage is underwritten by Tier One Insurance Company, a subsidiary of Aflac Incorporated and is administered by Aetna Life Insurance Company. Tier One Insurance Company is part of the Aflac family of insurers. In California, Tier One Insurance Company does business as Tier One Life Insurance Company (Tier One NAIC 92908).
This is a brief product overview only. Coverage may not be available in all states including but not limited to DE, ID, NJ, NH, NM, NY, or VA. Benefits/premium rates may vary based on plan selected. Optional riders are available at an additional cost. The policy has limitations and exclusions that may affect benefits payable. Refer to the policy for complete details, limitations, and exclusions. For costs and complete details of the coverage, please contact your local Aflac agent.
The content herein is provided for general informational purposes and is not provided as tax, legal, health or financial advice for any person or for any specific situation. Employers, employees and other individuals should contact their own advisers about their situations. Receipt of accelerated death benefits may affect eligibility for public assistance programs. Benefits may also be taxable, and are not expected to receive the same favorable tax treatment as other types of accelerated death benefits that may be available.
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