Life Insurance Withdrawals

by Alibaster Smith ; Updated July 27, 2017

Cash value life insurance offers the benefit of a cash value. The cash value acts as a savings that you can use for any purpose. While some policies only allow loans, other policies allow withdrawals.

Benefits

By withdrawing money from your life insurance policy, you do not incur loan interest. Policy loans cost money, and even though insurers may offer low loan rates, you could end up paying interest on the loan.

Drawbacks

If you withdraw more money from your policy that you paid in premiums, there will be tax due on your withdrawals. Additionally, withdrawals permanently decrease the total death benefit and cash value account. With loans, money is simply borrowed against the value of the account, while the total value stays intact.

Considerations

Consider whether it makes sense for you to withdraw money from your life insurance policy. Consider the tax implications and the fact that your policy size will be permanently decreased as a result of the withdrawal.

References

  • "Life & Health Insurance, License Exam Manual, 6th Edition"; Dearborn Financial; 2004
  • "Ernst & Young's Personal Financial Planning Guide, 5th Edition"; Martin Nissenbaum, Barbara J. Raasch, Charles L. Ratner; 2004
  • "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007

About the Author

I am a Registered Financial Consultant with 6 years experience in the financial services industry. I am trained in the financial planning process, with an emphasis in life insurance and annuity contracts. I have written for Demand Studios since 2009.