Three ways to access cash in your life insurance policy

Wouldn’t it be great to have an investment vehicle with guarantees that keep growing regardless of how the market is doing? An investment vehicle that can fund your future endeavours and best of all, it’s your money and you do not have to go to the bank. 

A participating whole life insurance allows you to be your own bank. As you pay your insurance premiums, your policy is guaranteed to grow a cash value. The cash value is the value of the life insurance policy. In addition, your paid premiums are pooled with other policyholders in a safe and secure account which has the potential for financial growth or dividend returns. Rest assured the funds are professionally managed. Here are three ways to access the cash value in your life insurance policy.

Policy Withdrawal

A withdrawal is one of the most common ways to access your built-up cash value. If you choose to withdraw money from your cash value account, the amount will be deducted from the death benefit. In addition, the funds withdrawn from your cash value account will be subject to taxation.  The funds that you withdraw must be denoted as income on your tax return. This option is a tax deferred strategy because your investments grow tax exempt while inside the Participating account and taxed upon withdrawal.

Policy Loan

You can access your money by requesting a loan from your insurance carrier. Here are the advantages using this method. 

Typically, an insurance company may allow you to borrow 90% of the cash value. However, it is advisable to check with your insurance carrier as the borrowing amounts may vary. Unlike other permanent life insurance products, universal life insurance, the reason why insurance carriers can offer loans up to 90% is because the cash value vests immediately and cannot be decreased despite market conditions.   

Another benefit of this option is that the principle remains invested. The insurance company is loaning their money, typically between 6% - 8%. This allows for increased growth in your policy. By way of example, your policy has a cash value of $100,000 and you request a policy loan of $50,000, the insurance company will provide a loan of $50,000 of its money.  Your $100,000 will remain invested in the paid premiums pool with other policyholders for financial growth and potential dividend returns.

Lastly, you do not need to qualify for this loan. There is no credit check or income check.  Approval is instant.  

Policy Collateral Loan

You can access your money leveraging a Third Party lender, typically a bank. The mechanics of this strategy is similar to a policy loan with the insurance company except your policy will be used as collateral with another lender. Interest rates with a third-party lender are typically less than your insurance carrier.

In conclusion, unlike the policy withdrawal strategy, a policy loan or collateral loan strategy provides the unique benefit of no tax implications. Your money is growing tax exempt within the Participating account which is accessible to you tax free. In the unfortunate event of a policy holder’s death, any outstanding loan balance will be settled from the life insurance policy prior to distributing any proceeds to designated beneficiaries.