You might have a life insurance policy that you are thinking of cashing out. Generally speaking, this would be a whole life insurance policy, as term life insurance does not accumulate a cash value the way whole life insurance does.
There are several reasons you may want to cash out a life insurance policy:
- You have big debts you need to take care of. Cashing out a life insurance policy could go towards paying the debts.
- You are paying too much for life insurance, and want to switch to a different life insurance company.
- You have upcoming expenses you would like to use the life insurance policy proceeds for, such as starting a new business, or paying a mortgage.
- You are seriously ill, and need the money while you are alive to take care of your health.
After all, you may need the money now when you are alive, as opposed to your beneficiaries getting it when you pass away. So you may need the money from life insurance now.
Options when it comes to getting money from life insurance
However, you do not need to completely surrender your life insurance coverage if you need to get the money. For example, you can borrow from the cash value of the policy. This is not the full death benefit of the policy, but the investment component of the life insurance, including part of the premiums, minus fees. Generally speaking, you can take it as a loan and can pay it back at a low interest rate in the future, or you can decide not pay it back and see the death benefit for the policy decrease on the life insurance policy.
You can also surrender the policy, and take all the cash value from it. This is something you might consider if you have another company that you are going to get life insurance from. However, you might want to wait and make sure that you have a new policy established before doing so. After all, the new insurance company could reject you before the policy goes into effect, and then you would not have life insurance at all.
Also, if you have health issues and need the money now, you might be able to get a life insurance settlement, or a viatical settlement. What this means depending upon the company, is that you could get the life insurance money now to help you with medical and living expenses. It would not be the full value of the policy, but it could keep you afloat financially for the rest of your life.
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