Thursday, December 03, 2009

How to Withdraw Cash Value From a Life Insurance Policy

One of the ancillary benefits to owning a permanent life insurance policy is the equity that accumulates inside it, called Cash Surrender Value (CSV).

With each premium payment you make, a small portion of that money is set aside into a separate account where it can earn a modest rate of return.

Over time, your continued contributions to this account, plus the interest earned, can result in a sizable sum of money that is available for withdrawal if you ever need it.

Step 1

Determine how much cash value is inside your life insurance policy. This amount is usually listed on your monthly or quarterly policy statements, and can also be provided by your insurance company’s customer service representatives.

Step 2

Determine how much of your policy’s cash value can be withdrawn without endangering the integrity of your life insurance contract. Permanent life insurance policies require a certain amount of cash to continue operating properly, and this amount increases over time.

Step 3

Determine how much of your available cash value is appropriate for your needs. You are not required to withdraw all of the equity inside your policy.

Step 4

Complete the forms required by your life insurance company to initiate a withdrawal from your cash value account. This paperwork is easily obtained by calling your insurance company’s customer service department. Some life insurance companies may even make these documents available for download from their websites.

Step 5

Return the completed forms to the life insurance company’s Policy Maintenance department. The address and mailing information will be clearly identified on the documents, as well as the instructions that should accompany them.


Most life insurance companies offer the option of cash value withdrawal directly deposited into your checking account. Choosing this option will decrease the time it takes for you to receive the money.


Cash value withdrawals are considered loans because permanent life insurance policies require this money as time goes on. Northwestern Mutual explains that “the cash value offsets the cost of insurance in the later years and keeps the premiums from rising as they would with term insurance.” If you fail to repay the loan by the time the policy needs the money, you will be required to increase your monthly premium payments to replace the amount needed by the policy.

Many permanent life insurance contracts stipulate that your death benefit will be decreased by the amount of any outstanding loans. If you die before you have repaid the cash value loan, your heirs will receive a lower death benefit.

Cash value loans are typically non-taxable as long as your withdrawal consists of only your actual contributions, called your Basis, and not the interest earnings in the account. According to Axa Equitable, “if you make a withdrawal over and above your basis in the policy, a portion of the withdrawal will be considered taxable income”.


Axa Equitable: Protection Planning Common Questions
Northwestern Mutual: The Value of Cash Value
Investopedia: Cashing In Your Life Insurance Policy

This article is a Twisted Nonsense Exclusive! (12/03/2009)

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