In retirement you may want access to some or all of the cash in your senior life insurance policy. What are some of the ways to get at it?
All cash-value life insurance policies include a "surrender right," which entitles you to give the policy back to the insurer for its current cash value if you suddenly need cash. If you surrender the policy, your current insurer cancels the insurance and sends you a check for its cash value.
You can find out the status of your policy. Just ask your agent or the insurer for an in-force policy and to show your status. He should give you a table illustrating your guaranteed cash value, estimated cash value; cash surrender value, and death benefit for the remaining years of the policy. Insurance companies send statements with this information to you each year on the anniversary of the policy.
When you retire, you can turn the built-up cash value of your life insurance into cash. A couple of ways are:
• You can withdraw your basis in the policy free of tax. The basis is the amount of premiums you paid less any withdrawals you have made.
• You can take a policy loan. Loans are not generally taxable because they are an advance of the death benefit.
(Remember that taking cash from your policy will reduce or eliminate your death benefit.)
You could also sell your policy for cash to a third party but we discuss this in a separate post.
You may want to terminate it all together. Most cash-value policies offer three non-forfeiture options if you want to terminate your policy before maturity:
1. You can receive the policy's cash surrender value in a lump sum, or
2. You can use the lapsed policy to continue to provide death protection at the net rate for term insurance, or
3. You can buy a paid-up term or cash-value policy for a reduced face amount using part of the cash surrender value of the policy and keep the rest for your use.
If you have life insurance held within an irrevocable life insurance trust, you generally can't touch it. However, a family split-dollar arrangement can make the cash accessible by structuring the ownership of the life insurance policy so that the trust owns the insurance coverage and the trust-maker's spouse holds the investment component.
Note that the purchase of life insurance will incur fees, commissions, and potentially surrender charges. Withdrawals prior to age 59½ are subject to 10% penalty. Guarantees are subject to the claims-paying ability of the insurance company. Income received from a life policy classified as a modified endowment contract is taxed as ordinary income. Not everyone can purchase life insurance due to health reasons. The purchase of life insurance simply to access the cash value may not be suitable unless insurance coverage is necessary.
Insurance professionals who seek to schedule appointments with retirees concerning their life insurance issues
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Personally, I'd avoid a whole life policy and it's associated investment component in favor of a "plain old term life" policy. Good article though.
Thanks for the information. I would also suggest to stick to the term life insurance policy instead of the whole life policy, there are many things that the term can give you over the whole like one that will take too long to explain here but it has been proven to be much better.
Thanks for your article though 🙂
TM
Term life insurance is probably the best way to go, especially in these tough economic times. I would make sure you weigh all of your options first, before making any decisions. Not everyone's situations are the same.
Thanks for the information. You do a great job explaining things!!
Interesting post. I think taking the cash basis sounds like the best way. Not sure if every insurance company allows it and if it cancels policy. I never thought about half the ways you listee to take cash from insurance policy so i need to read more about it.
Thanks i never knew you could use some of the momney to buy a new policy and keep the rest. I think after a certain age that would be a great idea if you do not need the same amount of coverage.
What kind of commission fee is usually acceptable?
Insurance for Seniors are not supported by many companies but few have some offers. Your suggestions are very helpful for seniors.
Huge thanks for the great article. It is an interesting topic for me because I am in retirement now and I am experiencing some problems with the money. Thank God, I will be able to access my insurance cash. I am paying for my life insurance for a very long time now so I think it has to be a great amount there. But enough talks about me, thanks one more time for the great article and I am looking forward to another useful ones.
First of all, i wish to appreciate you for making this wonderful blog. This will be useful for everyone in future days,... Creating awareness on the senior life insurance schemes will benefit everyone 🙂 Angeline @ Marcus evans scam
I just read on an MSN article that people should skip the college savings funds for their kids and invest in their own retirement packages. Sure gave me a different perspective on this article 🙂
-Jack
Sometimes to find best life insurance we must spent little time ti searching it,..
thanks for your information about this life insurance
What are the costs associated with senior life insurance policy and how do they compare to other types of insurances? Is it better than your typical income protection policy or is better overall. It sounds very flexible and easy to get access to money which would be great for a person going into retirement. Is there a way to find out if you do take out money early is there penalties for doing this especially if you take out a lump sum? Also is it possible to borrow against the value of this policy? I would like to find out more about protecting my income in the future when I retire. I am 40 now I am too old?
hello,
In my opinion you should also stick to the life insurance policy instead of the whole life policy .
I definitely agree with term based insurance, same concept goes for car insurance. I doesn’t hurt the budget, especially in this economic crisis times. I must say that this is a helpful article, will refer this to all my retired friends.
Life insurance can be very complicated and I question the value of it. I think traditional savings in the bank or investment in property might yield better results.
It's amazing how little most of the people making comments know about the power of the right kind of whole life insurance policy.
The uber wealthy have been using it for over 100 years to safeguard their money, get 100% guaranteed rates of return, and significantly lower their taxable retirement income.
The whole reason that there is an economic meltdown right now is because of too much investing in unstable things like stocks, bonds, mutual funds, and real estate...
Great post but can someone please tell me the difference between whole life insurance and term life insurance? I am guessing that whole life insurance is the type of policy mentioned above?
I use to sell life insurance. Its very difficult to convince people they need it, especially younger people. But choosing the correct plan early on can be beneficial - although in the majority of cases investing your money wisely can pay off better in the long run. Of course if you die, have a term life policy can cover the loss.
One should always keep cash Out policy in mind when trying to access life insurance. The most ideal way to access your cash in times of emergency is through the use of a policy loan.
Good post. This will sincerely help the senior citizens in deciding about the provident fund.
You have to be careful when you do make the decision to sell your life insurance policy, though, because you might end up paying a lot of taxes on it. You might also have a hard time buying another life insurance policy should you decide to do so.
Owners of retirement life insurance, must consider their actions very carefully. Often this is the most significant amount of money that will be available aside from your family home.
With the surrendering of your whole life policy you also have to consider whether or not you are already have a good investment in your whole life policy. You may have immediate expenses that force you to relinquish your policy but if you don't have to and are receive a good return on your money, a person might consider keeping their policy
I like the idea of some cash to allow for those first few years of retirement. Often there is many outgoings associated with your new lifestyle and what a wonderful joyous time you may have if your cash can see you through to a more stable time in our life.
Cash now, do not be fooled. If you fail to take the cash value out of your policy before you die, guess. Who gets the money when you pass. This is not a trick question. You surrender it and the insurance company keeps it. Think about cashing it out today.