It can be tempting to tap into the cash value of a life insurance policy that has been accumulating for many years. However, unlike normal investment accounts, accessing life insurance cash value is not a straightforward process. There are three ways to access your cash value: surrender, policy loan, or a secured loan. Each method has implications that should be fully understood as they can have a serious impact on your tax bill.
Over this series of articles, we will look at defining these methods as well as exploring their implications.
We previously defined and looked at the implications of the first method:
Surrendering Your Policy. Now, let’s define the second – Policy Loans.
Policy loans are typically a contractual right on most permanent life insurance policies. Life insurance policy loans allow policy owners to access their cash value without relinquishing the death benefit. Unlike a regular loan, policy loans are typically straightforward to get and do not require any extensive applications or other requirements. Policy loans do not technically have to be paid back but they do charge interest which will accumulate on top of your loan.