Life Insurance - How to Cash in If in Financial Difficulty

Life insurance can provide numerous ways to get past difficult financial periods. If you are in need of an urgent loan or cash, your policy can become a real financial aid. At the same time it offers the protection every family needs. Let's explore together the different ways in which a life insurance policy can help you get over a "financial crisis"!

Withdrawing money from your policy

Permanent life coverage policies come with an investment component. The policy builds cash value by allocating dividends to the account. The money can be withdrawn by the insured; however there are some things you have to know about emptying your policy's "coffers".

Although withdrawing small amounts is tax-free going over the limit (which is generally set in your policy's terms) means that you will have to pay taxes. Withdrawing a high amount not only means that you have to pay taxes, but it may also lower your policy's value, which can reduce the death benefit.

There is also a time limit involved: withdrawing money too early is also taxable.

Taking a loan

Cash value policies give you the option of taking out a loan. The best part is that you do not have to meet any requirements to qualify for it and you do not have to pay back interest and it is tax-free! As long as you continue paying the premiums, you do not have to worry about paying back the money you borrowed because they will be deducted from the benefit when you die.

Who much can you borrow? This depends on the policy's value. You cannot take a loan that is worth more than the coverage you have.

If you cancel the policy, you do not lose the loan and the amount you borrowed becomes taxable, so be careful when borrowing money from life insurance!

Selling your policy

If you are in big financial problems, you have the option of a life settlement. Basically you will sell the policy to someone else for a onetime payment. The person who buys the policy will pay the premiums, but will also receive the death benefit.

In order to qualify for a life settlement, you have to be at least 65 years old, have a life expectancy less than 10 or 15 years and the policy's benefit has to be at least $100,000. This option works best if you are retired and do not need life insurance anymore, but are in need of money!