When Can I Withdraw Cash from My Life Insurance Policy?

When Can I Withdraw Cash from My Life Insurance Policy?

The ability to withdraw cash from a life insurance policy can empower you and your family to navigate financial issues confidently. While term life insurance is cheaper, it doesn’t provide a cash account for emergencies, unlike a permanent life policy.

Types of life insurance that build cash value

Life insurance policies based on term limits do not build cash value. On the other hand, whole life and universal life policies that fall under the umbrella of permanent life insurance pay a death benefit and grow in cash value over time.

Four ways to access your cash from a life insurance policy

  1. Surrender – You can cancel a permanent life insurance policy if you need a surrender value cash payment. You may have to pay a surrender fee that depends on the age of the policy. For newer policies, the fees may be a significant amount. However, you will not have the safety of life insurance any longer.
  2. Withdrawal – Cash is available in your permanent life insurance account when you need it for any purpose. If the withdrawn amount is less than the amount paid into the policy, it will not be subject to income tax. However, it reduces the death benefit amount.
  3. Loans – Instead of withdrawing money, you can protect the value of your account by borrowing against it. You do not borrow directly from the policy, but your insurer pays you the money and later uses your policy as collateral. The interest rates are comparatively lower. Repaying the loan is optional, but the loan amount will be deducted from the death benefit.
  4. Pay your premium – Make monthly or annual life insurance payments with your account. This option is common among retired policyholders who use their retirement income for everyday expenses while ensuring their life insurance premiums are paid.

What if I don’t withdraw from my life insurance policy?

If you never withdraw cash from your life insurance coverage, it will build the value of the death benefit for survivors. Before buying a life insurance policy, you should map out your needs, such as whether it’s practical to use the account for cash withdrawals. Your decision on how you use the policy should be based on your existing financial condition, such as whether or not you already have an account for savings and emergencies.

FAQs on accessing life insurance cash value

  1. Can I cash out a life insurance policy before my demise?

    Yes, you can withdraw some or all of the cash from a permanent life insurance policy at any time.

  2. How much can I withdraw?

    Like a checking account, you can take out any amount within your balance. A tax-deferred whole life or universal life policy will grow as time goes on. Be aware of the difference between the death benefit and the cash value of your account.

  3. How do I cash out a life insurance policy?

    It’s simple to withdraw all the cash from your life insurance coverage, and you can cancel the policy and receive surrender cash.

  4. Does a term life policy have cash value?

    No, a term life policy does not have cash value. A term life policy only pays a death benefit to beneficiaries upon your demise if it occurs during the specified term.

  5. How much can I borrow from a permanent life insurance plan?

    The amount you can borrow depends on the accumulated cash value. When you take out a loan against a life insurance coverage, you borrow against the death benefit. This amount grows over time, and the policy becomes collateral for the loan. In many ways, it’s easier to borrow money from your life insurance policy than with a conventional bank loan and will not involve a credit check.

  6. Do I have to pay taxes on loans from a life insurance policy?

    You will be free from paying taxes to the IRS when you borrow money from your permanent life insurance policy.

  7. Will I have to pay interest on the amount withdrawn?

    Yes, you will be charged a low-interest rate. Your insurance provider will add interest to your monthly balance until the loan is repaid. If you choose not to repay the loan, the balance and accrued interest will be subtracted from the death benefit upon your demise.


Buying a permanent life insurance coverage effectively protects family assets and can even provide you with cash while you’re alive. Contact our experts at CAV Insurance Agency to get a personalized life insurance plan in Wellesley, MA, today.

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