Hecht Insurance Advisors, LLC Blog
Five Smart Things You Can Do with Life Insurance Cash Value
Stay put -Let life insurance be life insurance. Your money is growing tax-deferred within the policy. And in the event of your death, an amount much greater than your current cash value will generally pass to your heirs, tax-free.
That's a significant benefit right there, and a compelling reason not just to let your policy grow, but to add more premium to it if you can.
Borrow against the death benefit - You can withdraw accumulated dividends, and then borrow against the rest of it, generally with no tax consequence, as long as you don't completely surrender the policy.
Interest will accrue, but you don't have to repay the loan yourself unless you want to. If you don't pay it back, the insurance carrier will simply subtract the balance due from any death benefit they pay to your beneficiaries.
Cash out the policy altogether - This option lets you get substantially all the cash in your policy. However, you may be subject to capital gains tax to the extent your cash value exceeds the amount you paid in.
Exchange for another life insurance policy - If you choose, you can execute a Section 1035 exchange of one life policy for another, tax-free.
You may opt to do this if you find ongoing premiums at a new carrier are lower for some reason, or if you want some specific protections or riders you can't get from your old carrier.
For example, you may be able to exchange a straight-ahead universal or whole life insurance policy for a policy that also provides a benefit in the event you need long-term care insurance.
Exchange for an annuity - You can also exchange a life insurance policy for an annuity, tax-free, under Section 1035.
You might choose to do this if you decide you no longer want the life insurance protection, but you do want regular and reliable income.
For example, if your beneficiaries are grown up and no longer rely on your life insurance death benefit, you may execute a 1035 exchange to a lifetime income annuity - maximizing your income over your expected lifetime, rather than paying a large death benefit.
You can choose a joint and survivor annuity to guarantee income to your spouse as well.
Life insurance is among the most flexible and powerful resources you can have in your portfolio as you grow more established. But to have all of the above options later in life, you must plan ahead now.
Talk to us today. We can help you develop a plan that meets your needs and financial objectives.