Welcome back to the blog of Naples Life Insurance & Annuity Advisors! On our blog, we cover topics that will not only educate our current and prospective clients in the Naples area about successful financial strategies, but also give them practical, simple tips to find prosperity in their current situation and into retirement. Today, we are picking up where we left off and covering the instances in which you can use the cash value of your life insurance policy. Before we continue, we must discuss a couple of pertinent points.
- Not all life insurance policies have a cash value as part of their benefits
- You must use or disperse the cash value of your policy before you die; if you don’t, the money goes to the insurance company
What Can I Use It For?
In our last blog, we covered that you can use the cash value of your policy to up the amount of your death benefit and to use it cover future policy premiums—using your cash value to cover premiums is called paying up. Here are a few other ways to utilize the cash value of your life insurance policy during your life:
Make a Withdrawal & Take Out a Loan
You can also use the cash value to pay for large expenses. If you choose to do this, you are essentially using your own money and will not need to pay back the amount. However, if you choose to borrow more than your cash value, you will need to pay back the amount with interest; whatever you owe and do not pay back will be deducted from the death benefit of your policy.
Grow Your Nest-Egg
You can also use the cash value of your insurance policy to grow your income during your retirement years. As mentioned in a previous blog series about LIRP’s, life insurance can be a means for having tax-deferred income that can supplement the other modes of income during retirement. It is suggested that you wait 10-15 years before you begin withdrawing the cash value as income.
You can also fully surrender your policy for the cash value. However, this action can have multiple consequences. Not only do your heirs not receive a death benefit, but you will have to pay income tax on the cash value you receive and, in many cases, pay surrender fees to the insurance company as well.
Interested in learning more about how life insurance fits into your retirement plan in Naples? Visit our website and contact Naples Life Insurance & Annuity Advisors!