Steps For Cashing A Life Insurance Policy

While life insurance was initially designed solely to protect your heirs in the event of your untimely death, more and more it is being used as a long-term investment strategy, so it is important to understand how to go about cashing your life insurance policy.  Your policy can be a great source of financial help should you be strapped for cash, or can even be used to help purchase a home or take a once in a lifetime vacation.

Things You Should Know Before You Cash In

Even policies without cash values can often advance you a loan against the death benefit that will be paid, so check with your agent to determine if you have access to any cash out method. Often, loans that are taken against your life insurance policy can be taken without tax or tax penalty.

1. Determine Your Policy Type

To begin the process of cashing in your life insurance policy, you should know what type of policy you have and whether or not it has been building cash value. If it has been building value, you have probably been receiving quarterly or annual statements.  Typical cash value policies include whole life and universal life policies. There is a difference between the cash value and the face value of your policy. If you cash in your policy prior to your death, you will only be able to obtain the cash value, not the higher death benefit.

2. Notify Your Agent

When you wish to cash in your policy, you need to notify your agent. Many insurance companies require processing time to cash out a policy. You may have to wait between two weeks and three months to receive the payment from your policy. You will be required to sign paperwork, but your agent should handle most of the details of cancelling and cashing out the policy for you.

3. Adjust Your Tax Planning

If you cash out your life insurance policy and do not allow it to mature and pay out a death benefit, you may have to pay income tax on the cash out. Contact your accountant or tax attorney to determine how much you will have to pay. It is wise to pay that amount out of the net disbursement.

4. Cashing In

Your insurance agent will let you know of the available methods for cashing in your policy. Often, you can have the money directly deposited to your bank account, or the insurance company can cut you a check.

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