Lots of individuals keep asking, "Can I sell my life insurance policy?"
The simple answer is yes, provided it has a cash value. Cashing out
your life policy is often a challenging thing to do because there is a
possibility it might lead to other problems.
Notwithstanding, here's a guide on the five critical things you must consider before cashing out your life insurance.
Tax Consequences
Cashing out your life insurance will come with tax implications. However, the tax will depend on the amount of cash you're taking from the policy.
If your life insurance cash out equals the amount you have paid in, then it will not be taxed as taxing such payment will amount to double taxation. But if you're cashing out more than you've paid in, then you must be ready to incur additional tax charges.
Imposed Charges
To discourage insurance policy owners from selling their policy, insurance companies impose specific fees. You must check with your life insurance policy provider to find out the level and type of charges that selling your life policy will attract.
Generally, the charges depend on the type of life policy you have, the cash paid into the insurance policy, the interest added, and the amount of the benefits.
Reduced Death Benefit
Selling your life policy will affect the coverage of your insurance. As a result, it will reduce the death benefits the beneficiary will receive. If you choose to cash out the entire money in the insurance policy, then the life policy will eventually be canceled. The good news, however, is the beneficiary will receive the full death benefit without attracting any income tax on the payment.
Maximum Withdrawal
When you choose to receive cash for life insurance, the maximum amount you can receive is calculated as the total cash in the policy minus the charges and other fees associated with selling your policy.
The total cash is the sum of all the money you have paid into the life policy via premiums. It is also worth mentioning that the accrued interest does not form part of the cash value.
Your Dependents
People buy insurance policies for different reasons. One of those reasons is to reduce their family's financial burden when they die. Before you decide to sell your insurance policy, you must find out if your family is capable of handling your funeral arrangements, and also able to avoid being in any financial danger.
Conclusion
Overall, selling your insurance policy comes with several risks and benefits. So, before you decide to sell your life policy, ensure you consider the points above. If you still find cashing out your life insurance policy as the best option, then excellent. However, you may decide to explore other options.
Notwithstanding, here's a guide on the five critical things you must consider before cashing out your life insurance.
Tax Consequences
Cashing out your life insurance will come with tax implications. However, the tax will depend on the amount of cash you're taking from the policy.
If your life insurance cash out equals the amount you have paid in, then it will not be taxed as taxing such payment will amount to double taxation. But if you're cashing out more than you've paid in, then you must be ready to incur additional tax charges.
Imposed Charges
To discourage insurance policy owners from selling their policy, insurance companies impose specific fees. You must check with your life insurance policy provider to find out the level and type of charges that selling your life policy will attract.
Generally, the charges depend on the type of life policy you have, the cash paid into the insurance policy, the interest added, and the amount of the benefits.
Reduced Death Benefit
Selling your life policy will affect the coverage of your insurance. As a result, it will reduce the death benefits the beneficiary will receive. If you choose to cash out the entire money in the insurance policy, then the life policy will eventually be canceled. The good news, however, is the beneficiary will receive the full death benefit without attracting any income tax on the payment.
Maximum Withdrawal
When you choose to receive cash for life insurance, the maximum amount you can receive is calculated as the total cash in the policy minus the charges and other fees associated with selling your policy.
The total cash is the sum of all the money you have paid into the life policy via premiums. It is also worth mentioning that the accrued interest does not form part of the cash value.
Your Dependents
People buy insurance policies for different reasons. One of those reasons is to reduce their family's financial burden when they die. Before you decide to sell your insurance policy, you must find out if your family is capable of handling your funeral arrangements, and also able to avoid being in any financial danger.
Conclusion
Overall, selling your insurance policy comes with several risks and benefits. So, before you decide to sell your life policy, ensure you consider the points above. If you still find cashing out your life insurance policy as the best option, then excellent. However, you may decide to explore other options.
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