When can you pull money out of your life insurance policy?

Asked by: Broderick Mueller  |  Last update: March 25, 2025
Score: 4.1/5 (36 votes)

If you've had your life insurance policy for several years, the insurance company may allow you to borrow from your policy's cash value. In most cases, you won't have to pay taxes on the money you borrow, but the insurance company will deduct interest payments from your cash value balance.

How soon can you withdraw from a life insurance policy?

It's often recommended to wait at least 10 to 15 years before cashing out a whole life insurance policy, allowing the cash value to grow. Before making a decision, consult with your insurance agent or a financial advisor to understand the full impact of cashing out.

What is the cash value of a $10,000 life insurance policy?

Say, for example, that you purchase an insurance policy with a face value of $10,000. Once the policy matures, the cash value of the policy should equal $10,000.

How soon can I borrow from my life insurance policy?

When your policy has enough cash value (minimums vary by insurer), you can use it as collateral to request a loan from your insurance company. Keep in mind that if you have a newer policy it may take several years before it has accrued enough value for you to borrow against.

What is the cash value of a $25,000 whole life insurance policy?

Examples of Cash Value Life Insurance

An example is a cash value life insurance policy with a $25,000 death benefit. Assuming you don't take out a loan or withdraw, the cash value accumulates to $5,000. After the policyholder's death, the insurance company would pay out the full death benefit, which would be $25,000.

How to Withdraw Money From Life Insurance Policy (Cashing Out Your Life Insurance)

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How much cash is a $100 000 life insurance policy worth?

A typical life settlement is worth around 20% of your policy value, but can range from 10-25%. So for a 100,000 dollar policy, you would be looking at anywhere from 10,000 to 25,000 dollars.

How long does it take for a whole life policy to build cash value?

A whole life insurance policy will begin building cash value as soon as you pay your first premium, and it will continue building throughout the life of the policy as long as there are funds in the account.

Can you cash out a life insurance policy while alive?

Most people buy life insurance to leave money for family members when they die, but there are also ways to get cash out of a policy while you're alive. Some options include taking a loan, withdrawing cash value, using living benefits, or selling the policy.

What happens if you don't pay back a life insurance loan?

At some point, if you don't make payments on the principal or interest, the loan balance could become equal to your policy's cash value. Once that's the case, your policy will lapse. At that point two things will happen. First, the insurance company will surrender your policy.

How do I know if my life insurance has cash value?

You can usually see the cash value of your life insurance policy, together with your surrender cash value, on your statement. The two might be different if the insurance company charges a surrender fee on the policy.

How much tax will I pay if I cash out my life insurance?

Is life insurance cash value taxable? Fortunately, the cash value of life insurance grows tax-free. This means that, in many cases, you won't have to worry about paying taxes on it.

What disqualifies life insurance payout?

Life insurance proceeds can be denied. Some denials are legitimate, like in case of policy lapses, material misrepresentations, or exclusions in the form of illegal activities or war. In other cases, bad-faith insurers use elaborate methods to reject claims so they do not have to pay the proceeds.

Can a nursing home take your life insurance?

Nursing homes can't take a senior's life insurance benefits away from designated family beneficiaries to cover outstanding costs. However, nursing homes can accept payments from the resulting funds of a sold or surrendered policy.

What life insurance allows withdrawals?

Permanent life insurance, such as universal and whole life policies, comes with a death benefit and a cash value account that you may can cash out while you're still living.

How to use life insurance to build wealth?

4 ways to use whole life insurance as an investment
  1. Withdraw or take a loan on the cash value. ...
  2. Create generational wealth. ...
  3. Collect dividends. ...
  4. Surrender the policy (but only if you no longer need it)

What type of life insurance can you borrow from?

You can borrow from permanent life insurance policies that build cash value. These would typically include whole life and universal life (UL) policies. You cannot borrow against a term policy since there is no cash value associated with it.

How long until I can borrow against my life insurance?

With each subsequent premium payment, a portion of your premium can grow tax deferred over time as part of the cash value component4 Policies typically don't accrue a meaningful amount of cash value – in other words, enough to borrow against — for the first two to five years of the policy.

Do you have to pay back the money you take out of life insurance?

Withdrawing cash in the form of a loan

The insurance company will charge interest on the amount loaned. If you do not repay the loan, the loan amount and accrued interest will be deducted from the death benefit paid upon the death of the insured person.

What reasons will life insurance not pay?

17 Common Reasons Life Insurance Won't Pay Out
  • Nonpayment of Premiums.
  • Death during the Contestability Period.
  • Misrepresentation on Application.
  • Employer Failed to Submit a Disability Waiver of Premium.
  • Problems with the Beneficiary.
  • Policy was included in a Trust or a Will.
  • Denials Due to Suicide Exclusion.

How do I use my life insurance while I'm alive?

4 Ways to Use Life Insurance While You're Alive
  1. Take a Loan or Withdrawal From Your Policy. ...
  2. Use Your Cash Value to Pay Premiums. ...
  3. Use Your Living Benefit Rider. ...
  4. Sell Your Policy. ...
  5. Tips for Buying Life Insurance.

How long do you have to have life insurance before you can cash out?

It usually takes a few years until the cash value in a policy grows to a usable sum, but once that happens, you'll have a financial asset that provides many advantages you can use while you're still alive.

Can you use life insurance to pay off debt?

Because the policy's cash value acts as the loan's collateral, policyowners can only borrow from life insurance to pay off debt when their policies accrue money. Only policyowners with permanent life insurance policies, such as whole and universal life insurance, are eligible for this type of loan.

What is the cash value on a $25,000 life insurance policy?

Upon the death of the policyholder, the insurance company pays the full death benefit of $25,000. Money accumulated in the cash value becomes the property of the insurer. Because the cash value is $5,000, the real liability cost to the life insurance company is $20,000 ($25,000 – $5,000).

Can I access the cash value of my life insurance policy?

You can tap into your cash value by borrowing against it, making withdrawals, surrendering your policy, using the funds to pay premiums, or selling the whole policy. Check with your insurer to determine which cash value options it offers, the requirements, and the costs.

How much do you get when you cash out a whole life insurance policy?

You can cash out a life insurance policy. How much money you get for it will depend on the amount of cash value held in it. If you have, say $10,000 of accumulated cash value, you would be entitled to withdraw up to all of that amount (less any surrender fees). At that point, however, your policy would be terminated.