The cash value of your life insurance policy is an integral part of the financial planning process. It’s a pool of money that accumulates and grows over time, which you can access if needed.

As the policyholder, you have several options for what to do with the cash value of your life insurance policy.

Understanding cash value life insurance

Before making any decisions about what to do with the cash value of your life insurance policy, it’s essential to understand precisely what this term means first. So, let’s start by answering the question: what is cash value life insurance?

Cash value life insurance policies are permanent policies that come with an investment component alongside traditional death benefit coverage, as well as possibly living benefits such as accelerated death benefit riders. These policies are designed to accrue a cash value over time, which can be accessed by the policyholder as needed.

It’s important to remember that any money taken from the cash value will generally reduce the overall death benefit amount, so it should be used only when necessary and according to your specific financial goals and needs.

One last key question to answer before making any decisions is: do you pay taxes on a life insurance cash out? In most cases, no, so long as certain conditions are met. For example, if the total withdrawal or loan amount does not exceed the premiums paid into the life insurance policy, no income tax would typically be due upon repayment of the loan or cashing out of the policy.

If you do have to pay taxes on the withdrawal, then it’s important to speak with a qualified tax professional about any applicable deductions and credits that may be available.

Here are four things you can do with the cash value of your life insurance policy

1.      Borrow from your cash value

One option is to borrow from your policy’s cash value to help cover unexpected expenses or invest in other areas.

If you are able to borrow from your life insurance policy’s cash value, it’s known as a “policy loan” and may not have to be repaid until the insured individual’s death. The availability and amount that can be borrowed will depend on your specific policy and its provisions.

2.      Use funds for long-term care expenses

Using funds from your life insurance policy may be an option if you or a loved one requires long-term care, such as nursing home costs.

Accessing available cash values in certain types of policies, like whole life or universal life policies, may be possible to use those funds to help pay for long-term care expenses without liquidating any other assets first.

3.      Make premium payments

In some cases, premiums on a life insurance policy may become unaffordable due to changes in income or other circumstances. But if there is enough accumulated cash value in the policy, then it may be possible to apply this money towards paying premium payments instead so that coverage remains intact for as long as needed.

4.      Withdraw funds early

While not recommended unless necessary due to potential tax implications, withdrawing some or all of the funds from a life insurance policy early may be an option if available funds are needed quickly and unexpectedly.

Just keep in mind that taking out too much too soon could reduce how much money is available in total by eroding away at both interest and dividend payout amounts over time, so make sure you understand what taking out early withdrawals could mean for your overall financial plan before moving forward with this decision.

Bottom line

No matter what your financial situation is and what goals you’re looking to achieve, understanding cash value life insurance policies and how you can utilize them can be highly beneficial for both immediate needs and long-term planning.

As always, it’s best to speak with an experienced financial advisor or life insurance expert to ensure that all decisions align with your specific overall financial plan.

Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.??

Aflac life insurance coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, Aflac life insurance coverage underwritten by American Family Life Assurance Company of New York.

Life – 68000 Series – In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68100-A68400. In New York, NY68100-NY68400. Term/Whole Life – B60000 Series – In Arkansas, Idaho, Oklahoma, Pennsylvania, Texas, & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Group Whole Life – Q60000 Series – In Arkansas, Policy Q60100CAR. In Delaware, Policy Q60200M. In Idaho Policy Q60100CID. In Oklahoma, Policy Q60100COK. In Oregon, Policy Q60100COR. In Texas, Policy Q60100CTX. Group Term Life Q60000 Series  – In Delaware, Policies Q60200C. In Arkansas, Idaho, Oklahoma, Oregon, Texas, Policies ICC18Q60200C, ICC18Q60300C, ICC18Q60400C.

Coverage may not be available in all states, including but not limited to NM. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations and exclusions.

Aflac | WWHQ | 1932 Wynnton Road | Columbus, GA 31999  

Aflac New York | 22 Corporate Woods Boulevard, Suite 2 | Albany, NY 12211

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