Life insurance policies operate uniquely compared to other insurances. In some cases, you may receive cash value from your policy. This is only if you have the right life insurance policy, however.
What is a Cash Value Life Insurance Policy?
A cash value life insurance policy is a type of whole life insurance, also sometimes known as a universal life insurance policy. This life insurance allows you to place a portion of your premiums into a type of savings or investment. As you pay premiums, you may be able to withdraw a portion of cash value from the savings account. This should not affect the benefits that accumulate for your beneficiaries.
You may take out cash any time once premiums have been paid and money has been deposited.
Cash value only applies to certain whole life insurance policies. This is not available on term life insurance policies, which only cover you for a certain amount of years as agreed on the policy, such as 10, 20 or 30 years. If you cancel a term life insurance policy or your coverage lapses, you will not receive any cash value for the policy.
Not all policies offer cash value. Cash value whole life insurance policies generally cost more than a basic whole life insurance policy, so some people opt for a whole life insurance policy without cash value.
What Happens if You Cancel a Cash Value Life Insurance Policy?
If you cancel a basic whole or term life insurance policy, you will not receive compensation for the premiums you paid. The same applies if you outlive your term policy. Instead, your coverage will simply end, and you will have to purchase another policy if you want to be covered again.
If you have a cash value life insurance policy, however, you may receive cash value for the cash you put into the savings section of your life insurance policy. Keep in mind that if you cancel or outlive a life insurance policy, your beneficiaries will not receive benefits as detailed on the policy as a result of the policyholder’s death. The money you withdraw may be taxed, however, and will not be added to the death benefit. If a policyholder with a cash value policy dies while the policy is active, for example, the insurer will keep the accumulated cash value while the beneficiaries will receive only the amount agreed upon through the policy.