Can I take my cash value from life insurance? The policyholder suddenly wants to cancel his or her life insurance policy due to a specific reason. Canceling a life insurance policy with cash value is applied for term and life policies and you can do it anytime. Your cancelation is quite conducted by no longer paying a premium or letting your insurer knows.
Even though, term life and permanent life policy have different ways to cancel. The term life is more straightforward while the permanent life policy may be more complex and time-consuming. It is as this type of insurance policy combines life insurance and investment products.
Cancel Term and Whole Life Insurance Policies
A life insurance policy consists of several types like term-life, whole-life, and universal life plans. The whole life and universal life include the permanent life insurance products offered by many insurers. Both term-life and whole-life have different manner to cancel the policy with a cash value.
Term Life Cancelation
The term life insurance policy is a tool to save the policyholder’s family or called beneficiary from a financial issue. Usually, it occurs when the policyholder as the only source of income dies. The term life policy will pay a death benefit to the mentioned beneficiary if the death happens during the term
Most people choose to purchase the term life as it has lower premium rates than whole life or other permanent life policies. It does not provide investment vehicles and people can purchase the policy for 10 to 30 years of premium installment.
How to cancel a term life policy is a piece of cake by stopping paying your premium, calling the insurer, or writing a letter. The insurer also provides a cancelation form to fill out. Next, you can follow these steps:
- Contact the insurer to get detailed information on the cancelation process.
- Fill out the cancelation form by including your full name, contact details, policy number, and the date to cancel.
- Cancel your automatic payments starting on the date of cancellation (You might have set up with your insurer or bank.
- Ensure your term life policy has been canceled by making a follow-up. You may do it when you do not receive a confirmation from your insurer in several days.
Whole Life Insurance Policy Cancelation
Next, canceling a life insurance policy with cash value for a whole life policy is more complicated than the prior type. Moreover, this one of the permanent life policy types contains investment within the policy. Equal to the term life policy, you have to contact your insurer for cancelation.
Further, the insurer will handle your cash value amount and the missed payments. However, it depends on how long you have had your whole life policy. When cancelation, you likely have a few options to cancel such as below:
Surrender The Policy
You may surrender or cancel your policy to collect any accumulated cash value after 20 years of taking out the policy. If you cancel for less than 20 or 10 years, the insurer will not pay the cash value and you have to pay a penalty.
Canceling a life insurance life policy with cash value can be done in a whole life policy with the “cash surrender value” gives a lot of benefits. You will get more money if you have purchased your policy longer. The cash value can be used as collateral for the loan when you want to avoid your policy surrender.
Try A Reduced Paid-Up Option
It is an option from the insurer to stop paying premiums but you should reduce the death benefit on your policy. This way makes your beneficiaries keep receiving lump-sum death benefits when you die in the period.
Stop paying premiums emerges two possibilities such as getting automatic cancelation from the insurer. It applies to the term life insurance policy while the permanent life policy makes you lose your accumulated cash value. But, it happens when you do not pay the premiums by the end of the grace period.
Sell Your Whole Life Policy
The whole life insurance allows the policyholder to sell the policy to a third party for a one-time upfront payment. It is known as a life settlement and the purchaser will be the beneficiary, policy owner, and takes over the premium payments. Here, the payment is typically smaller than the death benefit.
A tax-free exchange helps to get rid of and replace your life insurance policy without paying taxes. This option asks you to surrender your whole life insurance policy. Even though, it leads you to have a new policy not collecting the money as you are avoiding income taxes.
Reasons to Cancel Life Insurance Policies
Once more, canceling a life insurance policy with cash value needs more reasons. Some situations force you to cancel your policy:
- You do not have longer financial coverage as you are single or live alone.
- All of your debts have been paid out.
- You cannot afford your premium installments.
- Invest money in another account of a portfolio with higher returns.
- Take a more aggressive approach to investing.
- Collect the life insurance policy cash value portion.
- Have good health conditions and stop smoking.
- You have been offered a new life insurance policy with a better rate.
When to Cancel Life Insurance Policy
In general, it has some situations to cancel the life insurance and makes sense to stop paying for the policy.
No Longer Need Coverage
You may regard your life insurance policy as not worthy or cannot be a part of your financial portfolio. It happens when you no longer need coverage as your family is grown. Your children have graduated from school and work or even married. Then, your spouse or partner can manage their life without receiving the death benefit.
Changing Investment Strategy
As time goes by, you realize your life policy is not good as your financial vehicle for long-term savings. Therefore, you think to change your investment strategy by finding a financial advisor. It is a finance expert and can help you to stop your policy or not.
The financial advisor may recommend an annuity or mutual fund. Alongside that, it often suggests cashing it and invests to in a higher-interest-bearing account.
Cannot Afford The Premiums
Additionally, cannot afford the premium often become the most reason to cancel the life insurance plan. A lot of reasons for someone should stop the premium payment such as loss of the main income, disability, accident, pandemics, and so on.
2 Situations of Cancelling Whole Life Insurance Plan
Canceling a life insurance policy with the cash value of the whole life may cause two reasons or situations. Firstly, the cancelation happens during the surrender period and it has different cancellation rules from other policies.
You will get any cash value if the cancelation happens during the surrender period as some insurers do not want to pay for it. Additionally, most insurers also charge steep surrender fees to recoup their expenses from setting up and selling a life insurance policy.
Secondly, canceling after the surrender period will be more advantageous. You likely will receive your cash value earnings though it asks for paying surrender charges. In this situation, the insurer typically reduces your surrender fee but it is only once a year over the first decade the policy is active.
Alternative To Cancel Whole Life Insurance
Most people consider canceling their whole life insurance policy as a higher premium cost. However, it can be prevented by lowering the death benefit or choosing a non-forfeiture option to reduce your costs.
If the reason for canceling a life insurance policy with cash value, you can do several ways in your whole life insurance. But the alternative ways below not only keep your coverage but also come with caveats.
- You can withdraw from your cash value to reduce the death benefit but the insurer often regards it as a loan.
- You may take a loan of your cash value but the insurer keeps charging interest. Unfortunately, you can lapse the policy if you cannot pay it back.
- Lastly, you can sell your whole life policy to a life settlement group. Typically, this option is available to older policyholders with a short life expectancy between 5 and 10 years.
Your Insurer Can Cancel Your Life Insurance Plan
The fact is the life insurance company can cancel your policy but it is according to two situations. Firstly, you do not pay your premium within the grace period. Secondly, you have given true information or lies on your application.
This act is regarded as a form of fraud if you lie about it. Meanwhile, a life insurance application belongs to a legally binding document. Surely, your insurer has a right to cancel your policy or raise your rate if you withheld pertinent information.
Vice versa, the insurer cannot cancel your policy as long as you are smoking. The rule is applied to you with a gain weight, are diagnosed with a health condition, or take up a dangerous job.
What Is Cash Value?
Cash value is the money held in your account or it is called account value. The cash value in the life insurance policy comes from your premium payment as your investment. Some of the money will be allocated to pay a bond portfolio and policy credit.
Meanwhile, considering canceling a life insurance policy with cash value is so essential. Moreover, the cash value is built by investing some of your premia in bonds or another vehicle. Therefore, you cannot withdraw the money early or you will get a penalty.
Cash-value life insurance makes your premiums go into the cash value, truly insuring you, and changing your policy and fees. It means you only receive a portion of the money as your cash value.
Cash Value In Whole Life, Universal Life, And Guaranteed Policies
The cash value of the whole life insurance will accumulate at a minimum guaranteed rate. Your annual cash value can build the account up faster if you receive company dividends.
Universal life insurance can provide enough cash value accounts to cover the costs of the policy. The growth can be tied to an index such as the S&P 500 (indexed universal life insurance) or sub-accounts that contain investments you choose (variable universal life). Further, the cash value in guaranteed issue policies comes with small coverage amounts and potential.
How To Access Your Cash Value
You can access your cash value by taking out a loan, withdrawing funds, and surrendering the policy. Afterward, you can use it to pay emergency costs, supplement retirement income, pay premiums, or anything you like.
Life insurance can be canceled both by the policyholder and the insurer based on specific reasons. However, how to cancel-term life and permanent life policies has a different way. Surely, you should understand the reason and when to cancel your policies.
Canceling a life insurance policy with cash value also adds information on what cash value is. This case is essential to know so you can use your cash value wisely from your policy cancelation.