Cashing in your whole life insurance policy is a big decision that can have lasting consequences on your financial life. A whole life insurance policy grows cash value as you get older and as you pay your premiums. If you want, your whole life insurance policy will last until you die. However, since it has a cash value, you can also cash it in. How does a life insurance policy cash out work and should you use it?
What Are You Cashing Out?
The first step in understanding a whole life insurance policy cash-out is to understand what it is. Your whole life insurance policy collects a premium from you every so often. They take this premium and it is used for several things. Part of the premium goes into a mortality benefit pool that pays out when you die. This money goes to your beneficiary. Another part of the money goes towards administration costs and overhead. The last part goes towards a general investment fund. The life insurance company directs the funds as they see fit and your cash value grows.
When you cash out a policy, you are not getting back all of the money you paid into it. You will only be provided with the cash value of the policy. Depending on how the investment portion goes, it could be larger or smaller. You do not know what the investments were or how much they made. All you see is the cash value of your policy.
Should You Cash In?
The first step in the cashing process should involve a lot of consideration on your part. Cashing in your policy is not something that should be taken lightly. If you have multiple policies, it might be a good idea if you need the money. If this is your only life insurance policy, it might not be to your advantage. You will leave your family at risk if you were to die. They would be saddled with your debts and not receive anything to cover your final expenses. Make sure that you are making the right decision before you cash in your whole life insurance policy.
Once you have come to a decision to cash in your policy, the process is easy. Most companies include a form to cash out your policy with your information. If not, you can request one from the insurance company. You simply fill out the form and then send it back to them.
Sometimes you will have to notarize the document or complete other measures. They might require some sort of official verification to make sure that you want to do this. Once they receive the form, they will begin processing your cash out. Also, if you live in a community property state, your spouse will typically be required to sign a form as well.
Depending on several factors, it could take a matter of weeks to get your money. It has to go through the proper channels and then a check must be cut. Typically, you will receive a check in the mail.