Cashing Out Lasso Whole Life Insurance: What You Need To Know

Life insurance is a way to provide financial security for your loved ones after you pass away. But did you know that certain types of life insurance policies can also offer financial benefits while you're still alive? This is where whole life insurance comes in. Whole life insurance is a type of permanent life insurance that not only provides a death benefit but also builds cash value over time. This cash value can be accessed and used for various purposes, such as supplementing retirement income, covering college tuition, or making a down payment on a home. In this article, we will explore the different ways you can cash out your whole life insurance policy and the potential benefits and drawbacks of each option.

Withdrawing your entire cash value

If you have a permanent life insurance policy, you can withdraw your entire cash value. However, there are some important things to keep in mind. First, you will likely need to pay taxes on the withdrawal. This is because the cash value of your policy grows tax-deferred, so you will need to pay taxes on the gains when you withdraw the money. Additionally, withdrawing your entire cash value will likely result in the cancellation of your policy, leaving your beneficiaries without a death benefit.

Before you make a withdrawal, be sure to check with your insurance company to understand the specific terms of your policy and how the withdrawal will affect your coverage. It's also a good idea to speak with a financial advisor to understand the potential consequences of accessing your cash value.

• Taxes: You will likely owe taxes on the portion of the withdrawal that exceeds the amount you've paid in premiums. Be sure to consult with a tax advisor to understand the tax implications of your withdrawal.
• Cancellation of policy: Withdrawing your entire cash value will likely result in the cancellation of your policy. This means that your coverage will end, and your beneficiaries will not receive a death benefit.
• Impact on death benefit: Even if you don't withdraw the entire cash value, doing so may still reduce your death benefit. This is because the cash value of your policy is typically used to increase the death benefit paid to your beneficiaries.
• Alternative options: Before withdrawing your entire cash value, consider other options such as taking out a loan against your policy or using the cash value to pay your premiums. These options can provide you with the cash you need while still maintaining your coverage.
• Time considerations: It usually takes a few years for the cash value of a policy to grow to a usable sum. Withdrawing your entire cash value early on may result in lower fees and a higher payout.
• Seeking advice: Consult with a financial advisor or a licensed life insurance agent to understand the potential consequences of withdrawing your entire cash value. They can help you weigh the pros and cons and make the best decision for your situation.

Making a partial withdrawal

Partial withdrawals from a life insurance policy are possible, and they are known as a partial surrender. This is when a policy owner withdraws some, but not all, of the cash value from their permanent life insurance policy.

There are a few things to be aware of when making a partial withdrawal. Firstly, the withdrawal may not be taxable if it is less than or equal to the amount of premiums paid into the policy. For example, if you have paid $20,000 in premiums and have a total cash value of $25,000, you can withdraw up to $20,000 without incurring taxes. Withdrawing more than this will mean that the excess amount is taxable.

Secondly, a partial withdrawal will lower the cash value of the policy. This means that if the insured person dies and there is still an unpaid cash balance, this amount will be charged against the death benefit paid out to the beneficiary.

There may also be additional costs when making a partial withdrawal, such as processing and administrative fees. It is important to be aware of all potential charges before making a withdrawal.

It is also worth noting that a partial withdrawal is different from a full surrender or cash-out, where the policy is cancelled and the remaining cash value is paid out, minus any surrender fees. A full surrender will result in the loss of life insurance coverage.

Borrowing money from your life insurance

If you have a permanent life insurance policy, you can borrow against the cash value of your policy. This is done by taking out a loan from your life insurance company, with the only requirement being that you have sufficient cash value to borrow against. There is no approval process, credit check, or fixed repayment date for these loans, and the interest rates are typically lower than those for personal loans or credit cards. The money borrowed does not actually come from your policy but from the insurer who uses your policy as collateral.

While borrowing from your life insurance policy can be a convenient option, it is important to note that it does come with certain risks. If you do not pay back the loan, the amount owed, including any interest, will be deducted from the death benefit that your beneficiaries will receive. Additionally, if the loan amount plus interest exceeds the cash value of your policy, it may cause your policy to lapse, and you may owe taxes on the amount borrowed.

Before deciding to borrow from your life insurance policy, it is recommended that you consult with a financial advisor or estate planning attorney to understand the tax implications and potential impacts on your loved ones.

Surrendering your policy

Surrendering your life insurance policy means cancelling it entirely and receiving a cash payment for the surrender value. This is an option if you no longer need coverage or don't want to continue paying premiums. However, there are some important considerations to keep in mind.

First, by surrendering your policy, you will lose your life insurance coverage, and your beneficiaries will no longer receive a death benefit. Second, there may be surrender charges deducted from the cash value, especially if you surrender the policy early on. These charges vary depending on how long you've had the policy and the amount being surrendered, and they can add up to a significant amount. Third, you may owe taxes on the interest earnings from the policy. For example, if you receive a $20,000 cash value payout, with $2,000 from interest, you will likely owe taxes on that $2,000. Additionally, you may owe taxes if you receive more than the cost basis or have any outstanding loans when you surrender the policy.

It is recommended to consult a tax advisor before surrendering your policy to understand the potential tax implications and how they will affect you. It is also important to consider if you still need life insurance coverage and if surrendering the policy will impact your overall financial plan.

If you decide to surrender your policy, you can do so by signing a lost policy release (LPR) form. This will cancel the policy and allow you to use the cash as you see fit. Keep in mind that the cash value you receive will be the surrender value, which is the cash value minus any fees charged by your insurance company.

Selling your policy

Selling your life insurance policy is known as a life settlement. It is a great way to get money for your unwanted policy, and you will receive much more money than if you were to surrender it back to the insurance company. Most types of policies qualify for a life settlement, even term life insurance policies.

The process of obtaining a life settlement involves selling a life insurance policy to a third-party buyer for a cash payout that is more than the policy's cash surrender value but less than the total face value of the policy. The third party will then pay the policy premiums, and when you die, they will receive the death benefit.

How to sell your life insurance policy

The steps for selling a life insurance policy for cash are as follows:

• Find an experienced life settlement provider.
• Meet the qualifying factors, such as owning a policy with a death benefit of $100,000 or more and being over the age of 60.
• Take a detailed health questionnaire.
• Provide authorization to the provider to access medical records and contact the insurance company.
• Share your policy details with the life settlement provider.
• Wait for the underwriting process to be completed.
• Accept the full cash offer or opt for an alternative such as a Retained Death Benefit, which allows you to receive a smaller cash payment while also keeping a portion of your policy's benefits with no future premium obligations.
• Complete the closing process, which involves transferring ownership of the policy and all accompanying documentation.

The amount of cash you may be offered for your policy can vary greatly based on the specifics of your case. There is no standard settlement ratio or payout amount, so there is no reliable way to provide an accurate estimate of your policy's worth until you go through the evaluation process.

However, according to a study by the London Business School, policyowners who sell their policies in a life settlement transaction generally receive an average of four times more cash than they would by surrendering their policies.

Factors that impact the value of your life insurance policy

• Life expectancy: The longer the insured's life expectancy, the more premiums the provider will need to pay, resulting in a lower policy value.
• Health of the insured: The insured's current health is important, as it is a major factor in calculating life expectancy and determining the policy's value.
• Premium schedule: Higher premium expenses reduce the amount the provider can afford to pay for your policy.
• Expected premium payments: The provider can determine the estimated total premium payments needed throughout the insured's lifetime, which will affect how much they are able to pay upfront.
• Size of the policy: The larger the policy, the larger the payout.
• Type of policy: While almost any type of life insurance can qualify for a life settlement, the type of policy can impact eligibility and the size of the payout. For example, when selling a term life insurance policy, the policy will usually need to be convertible unless the insured has a terminal illness.

Pros and cons of selling your life insurance policy

Pros

• End premium payments: Life settlements relieve you from the obligation to pay expensive premiums.
• Get more cash than the surrender value: Life settlements provide an average of four times more money than the accumulated cash surrender value.
• Access to large amounts of cash: A life insurance policy can provide an unexpected source of cash to supplement retirement income or pay down bills.
• Recoup money you've paid in: If you were to lapse a term policy, you would get nothing back, but a life settlement can help you get some of your investment back.

Cons

• Potential tax liability: You may owe income taxes on life settlement proceeds if the settlement is greater than the total amount you've paid into the policy over the years.
• Ask about fees or commissions: If you work with a broker instead of going directly to a life settlement provider, the broker will take a commission.
• You may lose eligibility for financial assistance: Check with a financial advisor to see if accepting a life settlement offer will affect your eligibility for Medicaid or other types of financial assistance programs.
• Eliminates death benefit: Your beneficiaries will no longer receive the death benefit associated with the policy. However, if you elect to receive a partial cash payment in an alternative life settlement program, you could maintain coverage in addition to receiving a cash settlement.

Frequently asked questions