Can a person "cash in" early on a life insurance policy?
Posted on Mar 07, 2008 under Insurance Information |My mother has had a life insurance policy for over 30 years now. She had taken out 1000.00 about 3 years ago. NOW she wants to just pull all of it but doesn't know if she can. Does anyone know?
March 7th, 2008 at 2:39 am
Read the policy. If it's a whole life policy with a cash value, she can get that.
March 7th, 2008 at 2:39 am
Depends on the contract. But don't expect a whole lot of money. With a $10,000 policy, you might get back a little over $4,000…And you may have to pay tax on it next year. Not a good thing to do, unless you really need the money.
March 7th, 2008 at 2:39 am
How old is she and how much is the policy? Their may be another rout you can take that will get you more than the cash value that the insurance company will pay.
March 7th, 2008 at 2:39 am
Hi
I if the policy is an UL Universal life insurance policy has cash value. A term Life has no cash value. There is a penalty to withdraw the money, but you can get a loan on the plan.
March 7th, 2008 at 2:39 am
First question for you is what type of life insurance policy does your mother have?
There are two basic types:
-Term Life
-Universal Life
I assume that it is a Universal Life policy that accumulates value over time.
Something that I would like you and your mother to consider is "why" she is withdrawing from her life insurance policy. Is the purpose due to a terminal illness, family emergency, unforseen medical costs? If the answer to this is "NO" ..that raises great concern.
The purpose of acquiring a life insurance policy is to protect and provide for loved ones that will be impacted by the loss of her contribution (financial, intellectual, physical, etc.) to the household. It is meant to alleviate the financial burden to the family who will experience the loss of her support and care.
If this is a concern for your mother or for the family, it is ill advised to pursue closure of the insurance plan and withdrawal of the money.
If your mother is seeking alternate ways to maximize the capital in her insurance plan, then an advisor should be contacted.
That being said, if you still are interested in cashing out the policy, it is very simple:
First step, locate a copy of your mother's life insurance policy. It will clearly state what the terms are.
Second step, if you require assistance or are unable to locate policy, contact the insurance company. They should be able to assist you in determining what amount she is able to withdraw. The agent/customer service rep will assist you in processing the closure/withdrawal.
Good Luck
March 7th, 2008 at 2:39 am
A life insurance policy is a unilaterally binding contract, meaning that only the insurance company is forced to adhere to it, barring you not making payments and a few other exceptions. Your mother can cancel or do a cash surrender on it at any time; however, she will not get the face amount of the policy, but rather whatever the cash value of the policy itself is. In addition, while the payout on life insurance when the insured dies is generally tax free, cashing out the policy early creates what is called a "taxable event", meaning that a very large amount of taxes will be assessed against the payout.
With life insurance, you are basically buying the face value of the policy during your lifetime, so it builds up cash value over time, but it is only as you get near to the age of 100 that cash value gets close to face value. A little known fact is that most policies provide that if the insured lives to 100, they can claim the entire face value of the policy (minus loans and whatever fees there may be).
If your mother is looking to take out the money because she needs it for medical reasons, you should check with your insurance company. Many policies have provisions for taking money out early for serious, ie. life-threatening, medical problems, such as transplants or terminal illnesses.
In the end, your best bet is to talk to your mother's insurance agent, if they are still around, someone at the local office of that insurance company, or someone at the insurance company's customer support section.
March 7th, 2008 at 2:39 am
Yep she surely can pull out all the money. Just know that, depending on the type, you could pay taxes on the cash. If what is taken out exceeds what was put in, taxes will be paid. If, on the other hand, the amount removed is less than what has been paid in there will be no taxes to be paid. Why is this?
It is set up to be taken out as a loan. Your policy will tell you how much she has in the cash account. Her last statement should tell her how much is in the cash value and how much she would get if she cancelled the policy. She will no longer have insurance if she takes all the cash out.
March 7th, 2008 at 2:39 am
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