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Yes, permanent life insurance policies, such as whole life, universal life or variable universal life, covers you for your entire lifetime and features a cash value account. (Term life insurance covers you for a specified number of years and doesn’t feature a cash account.)

Cash value lets you tap into the policy while you’re still alive. Three ways you can use cash value include paying your life insurance premiums, taking out a loan against the policy and partially or fully withdrawing money from the policy.

When you’re paid up — which means you have enough cash value to cover your life insurance premium payments — you can terminate the policy and take the cash.

But policyholders should be aware that a decision to cash in a fully paid permanent life insurance policy is permanent, says Frank Citera, a vice president at New York Life.

“Policy owners should consider whether their death benefit needs have changed and what the tax considerations of cashing in a policy may be,” he says. “If there is a gain in the policy (i.e. the cash value is greater than the total amount the client paid into the policy), the policy owner would pay taxes on the gain if the policy is cashed in.”

Rather than cashing in a whole life insurance policy or another permanent life policy, there’s another option. You could take out a loan against the life insurance policy’s cash value.

Before taking a loan from the cash value of a policy, Citera says, client should understand two things:

First, in addition to the loan amount, the policyholder will owe interest for each year the loan is outstanding on the policy.

Second, if the policyholder passes away with a loan outstanding on the policy, a portion of the death benefit proceeds would be repaid to the loan, with the remainder of the proceeds going to the beneficiary on the policy.

“Before cashing in or taking a loan from a policy, a conversation with a trusted financial professional can help clients understand their options,” Citera says.

Read about cash value in life insurance.

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Les Masterson


Les, a former managing editor, insurance, at QuinStreet, has more than 20 years of experience in journalism. In his career, he has covered everything from health insurance to presidential politics.



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