How to access your life insurance policy’s cash value

Posted on September 25, 2020January 30, 2025 by Shield Insurance Agency

The most important job of life insurance is to take care of those who count on you if something were to happen to you. While all life insurance provides a death benefit to fill this role, some types also build cash value.

What is cash value?

When you make a premium payment into a cash value life insurance policy, part of that money stays with the policy, earns a return, and accumulates over time. This is the cash value. It’s what you’d get if you surrendered the policy (less any surrender fees).

Some policies have a provision to pay out the cash value as part of the death benefit while others do not. Check your policy or check with your insurance agent to confirm which type you have.

Types of cash value life insurance

Permanent policies, including whole and universal life, offer lifelong coverage and have cash value. This cash value accumulates differently based on the type of policy.

Whole life cash values are pre-defined and guaranteed. In exchange for guarantees, the cash value grows at a conservative rate.
A fixed universal life (UL) credits the cash value with a rate determined by the insurance company based on market conditions. This rate can vary over time but won’t be less than a guaranteed minimum.
Indexed UL earns a rate tied to a market index, like the S&P 500®, which offers greater upside potential than the above types. When the market performs poorly, the rate may be lower, but there’s no risk of market loss since you’re not actually invested in the market.
Variable UL cash value accumulates based on the market performance of the mix of available investment options chosen by the policy owner. These policies can lose money.

6 ways to use your cash value

The cash value can be a useful financial tool and can be accessed in several ways — but make sure to ask your insurance agent for details to avoid any unintended consequences.

1. Pay policy premiums.
Another option to use cash value is to pay some or possibly all the premiums for your life insurance policy.

2. Take out a loan.
You can also take out a loan from your policy. The rate is usually lower than a bank loan — and you don’t have to qualify for the loan since it’s your money (good news for those with a weak credit history).

You don’t have to repay these loans, but interest will continue to accumulate. If the total outstanding loan balance including interest ever exceeds the cash value, the policy will lapse, ending your coverage. To avoid this situation, either pay the interest each year or keep an eye on the situation and take action when needed.

Any unpaid loan balances will reduce the death benefit when the insured person dies.

3. Make a withdrawal.
You can also withdraw some or all of your cash value — may be for an emergency expense or to get you through a tough time. Withdrawals can reduce the death benefit, though, so consult your agent before you pull the trigger. There are no taxes on a withdrawal as long as the amount is withdrawn is less than what you’ve paid in.

4. Supplement your retirement.
Cash-value life insurance can add to your retirement portfolio. Since it grows tax-deferred, it can accumulate faster, but it still may take a number of years, maybe 10 to 15, to become a significant asset.

Some policies also allow you to receive part or all of the death benefit early for terminal illness, long-term care, or chronic conditions, which can help protect your nest egg.

5. Surrender your policy completely.
If you no longer need the coverage, you can completely cancel or surrender your life insurance policy and receive the accumulated cash value, less any fees and outstanding loan balances.

Any money you receive that’s above what you paid into the policy will be taxed as ordinary income. So, if you paid in a total of $10,000 and you receive $12,500 after your surrender, you’ll be taxed on $2,500.

6. Sell your policy.
As an alternative to surrendering your life insurance policy, you may be able to sell it to a life insurance settlement company. The company will take over the payments and become the policy’s beneficiary.

Like a surrender, you’ll be taxed on amounts in excess of what you paid in premiums. You should still end up with more money than a surrender. However, the process can be time-consuming, and it may be hard to find an interested buyer.

With these many options, life insurance can not only protect your family, but it can also provide a flexible financial resource over the years.

A special thank you to Grange Life Insurance Company and Kansas City Life Insurance Company for contributing this article.

Life policies are offered by Kansas City Life Insurance Company, Kansas City, Mo., and are subject to underwriting approval.

Is Work Life Insurance Enough?

Posted on September 25, 2020January 30, 2025 by Shield Insurance Agency

Is the life insurance you have at work enough? 3 ways to tell

If you work full-time, chances are you have some life insurance through your employer — 75% of full-time workers in the U.S. have access to life insurance as an employee benefit and 98% of those workers are covered.¹ But is it all the life insurance coverage you need?

Many people mistakenly think it is, even though they could benefit from having their own life insurance outside of work.

Here are three things to consider:

1. Is it enough coverage?

If your employer offers life insurance and you signed up for it, at least you have some coverage. That’s better than no coverage. But it might not be enough to give your family the funds they need to make ends meet if the worst happens to you.

Research shows that one of every three families would be in financial trouble in less than one month if they lost a primary wage earner — and the percentage grows to 70% within six months.²

You can help your family avoid this hardship by making sure you have enough life insurance to replace your paycheck as long as needed (for example, until the kids leave home or the mortgage is paid off).

Your employer may limit the amount of group coverage available to you, leaving you short.

2. You can’t take Life Insurance with you.

Even if you can get enough coverage through your employer, that coverage may end before you want it to — and may end suddenly

Group life insurance is an employee benefit that usually ends when your employment ends. Even if you’re going to a new job immediately, you may not be eligible for benefits right away — if the new employer offers it at all. And, if you lose your job to a lay-off, downsizing, or firing — or if you retire — it might be a while before you can replace the coverage.

If your strategy is to buy individual life insurance later, keep in mind, that your health, driving record, and credit history must remain solid in order to qualify for it. Also, coverage generally costs more as you age.

3. No extra benefits or cash value.

Employer coverage is usually affordable and reliable. But it’s also usually pretty basic, meaning it doesn’t accumulate cash value over time or have any extra benefits under your control

Cash value. An individual policy you buy from an insurance agent can last for life — usually up to age 100 or 120 — and, depending on the type of policy, can build up a cash value that you can borrow against or use to pay part of the cost of the policy. Employer group plans don’t offer these options.
Extra benefits. These days, many individual life insurance policies offer additional benefits during the living years. These include features that provide part of the death benefit early if the insured person is diagnosed with a terminal illness or needs long-term care. Another feature can extend coverage to others in the family. These extra benefits may carry an additional cost, but that cost may still be lower than stand-alone coverage.

For these reasons, it might be wise to think of employer coverage as a supplement to your own individual policy, instead of relying on it as your only source of life insurance coverage. That puts you in the driver’s seat to choose the type and amount of coverage that’s right for you — and that can be customized to your needs.

1 – National Compensation Survey, Employee Benefits, Bureau of Labor Statistics, 2018
2 – Insurance Barometer Study, LIMRA, 2017