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How to get Cash from your life insurance.

Withdraw cash value, Take loan against insurance, 1035 exchange, exchange for long term care or sell.

If you bought a Whole life insurance policy for a long time and you need cash in your older age, you may be able to cash out the money before you die.

The several ways you can get money from your life insurance are:

Withdraw the Cash value of your insurance

A permanent life insurance policy has two parts. First is the Face Value. This is the amount of money that will be paid to your heirs or beneficiaries once you die. The other part is the Cash Value. This is a savings account that is funded by part of your premium payments. When the insurance company invests your money and makes good returns, you may also earn some interest going to the Cash value of your insurance.

So if you've had your life insurance for a long time, you will have a big amount in your Cash Value. So if you need some money now, you can withdraw the amount of your Cash value that is from your premiums. This is known as your Basis Amount and can be withdrawn tax free since it is like money saved in a bank account.

The extra amount of your Cash basis that was earned from interest is called the Gain. It can be withdrawn too but you will have to pay interest on it.

Note that death benefits will be reduced by the total amount of money you withdraw from your Cash Value.

Taking loan against your life insurance policy.

Borrowing a loan against your life insurance policy is another way to get money tax free from your life insurance policy. The bank will not check your credit score because they have the life insurance as collateral. If you don't pay your loan, it will be deducted from your Death benefits when you die.

However remember that the loan interest will be added to your balance. However you may choose to pay loan interest from dividends from your life insurance account.

There are many scenarios that may affect you when you take a loan against your life insurance and its good to consult a financial planner for advise.

1035 Exchange.

You can convert your life insurance into an income producing annuity without having to pay tax on the interest gained on your life insurance. This is done using what is called a 1035 Exchange.

In this way, an annuity company pays you a fixed income for the rest of your life or for a specified number of years in exchange for your death benefits. The annuity company will also take over payment of your premiums.

The exchange itself is tax free but you will pay taxes on each of the monthly payout, just as you pay for any income.

you can check this website ( to compare different annuity companies and what they pay out to customers.

Exchange Life insurance for long term care insurance.

This exchange can be done tax free and you will also not be required to pay taxes on your gains because long term care insurance policies are tax exempt. Most long term care insurance companies only offer partial exchange and will not give you a full lump sum of money. There are some companies that can offer to exchange your life insurance with a combination of life insurance and long term care insurance.

Therefore you can use the money from the long term care insurance and it will be deducted from your death benefits. However in some cases, you have to have a doctor certify that you are terminally ill before the insurance will do this exchange.

Its therefore good to consult a financial planner to explain the options for an exchange.

Sell your life insurance.

This is a good option if you currently need the money and don't need to preserve your death benefits. For example if your dependents are financially secure, you can sell your life insurance policy to an investing company, usually known as Life-Settlement companies.

A Life settlement company will buy your insurance for cash and they will then continue to make the premiums and then collect your death benefits once you die.

There are different things to consider when selling your life insurance policy and it is therefore also advisable to consult a financial planner.