Cashing In On Liberty National Life Insurance: A Step-By-Step Guide

If you're considering cashing in your Liberty National life insurance policy, it's important to understand the different options available to you, as well as the financial implications of each choice. Permanent life insurance policies such as whole life, universal life, and variable life insurance policies have a cash value that increases over time, and you can access this money through a loan, a life settlement, a withdrawal, or by surrendering your policy altogether. Each option has its own set of advantages and disadvantages, so it's crucial to carefully consider your specific circumstances and needs before making a decision.

Borrowing from the cash value

With most permanent life insurance policies, you have the option to borrow from your policy's cash value. Most insurers have a minimum cash value requirement that must be met before you can take out a loan. However, after meeting that requirement, you can borrow up to the full amount you have accumulated.

There are benefits and drawbacks to borrowing from the cash value. On the one hand, you are not required to make monthly payments, and you will typically get lower interest rates and more flexible repayment terms. On the other hand, if you are unable to pay back the full amount, the policy could enter equity surrender, and your beneficiary will receive a reduced death benefit.

It is important to carefully consider your coverage, benefits, and premium schedule before borrowing money against your life insurance policy, as it will ultimately impact your coverage. Additionally, keep in mind that any outstanding loan balance will reduce the amount of the death benefit payable to your beneficiary.

Cash value withdrawals

Permanent life insurance policies, such as whole life, universal life, and variable life insurance policies, offer a cash value that increases over time, tax-deferred. These types of insurance policies dedicate a part of your monthly premiums to building a cash account. Once your cash account has accumulated sufficient value, you can access the funds via a withdrawal.

Most insurers allow you to withdraw limited amounts of cash from your permanent life insurance policy. However, there are a few important things to keep in mind. Firstly, the amount you withdraw may be taxed. Secondly, the withdrawal might reduce the amount of your death benefit. Finally, it's important to note that term life insurance policies do not offer a cash-value benefit.

If you are considering withdrawing cash from your permanent life insurance policy, it is recommended that you speak with a trusted life insurance advisor first. They can help you understand your specific policy details and inform you of the best options for your situation.

Surrendering your policy

There are a few things to keep in mind when considering surrendering your policy. Firstly, you will likely have to pay surrender fees, and the gain on the policy will be taxed as income. Secondly, it is important to remember that you are giving up your death benefit, which may have a significant impact on your beneficiaries. Finally, the process of surrendering your policy can be relatively quick, providing you with access to cash in a pinch.

Compared to other options for cashing in your life insurance, such as loans or withdrawals, surrendering your policy is a more drastic step. It may be a good option if you no longer need life insurance coverage or if you have found a better insurance option. However, if you still require some level of coverage, it may be preferable to explore the other options available to you.

If you are considering surrendering your policy, it is always a good idea to speak with a trusted life insurance advisor or financial professional. They can help you understand the potential implications of your decision and ensure that you are making the best choice for your specific situation.

Life insurance settlements

A life insurance settlement, also known as a senior settlement, is when you sell your existing life insurance policy to a third party, such as a life settlement company or provider, rather than the company that issued the policy. The policyholder (seller) receives a lump sum payment from the third party offering the settlement. This option is available if you no longer want or need your policy, or if you can no longer afford the premiums.

The amount you receive will depend on factors such as your age, health, and policy terms and conditions. The payment is typically more than the policy's cash surrender value but less than the net death benefit. The buyer also agrees to pay any additional premiums required to maintain the policy for the duration of your life and will receive the death benefit when you pass away.

To qualify for a life settlement, you generally need to meet certain criteria, such as being over 65 years old, having a life expectancy of less than 15 years, and having a death benefit of at least $100,000. It's important to note that fees and commissions can be as high as 30%, and the sum received may be taxed as income.

Before proceeding with a life settlement, it's essential to understand your existing policy, the details of any settlement offers, and how brokers are compensated. It's also worth considering alternative options, such as borrowing against your policy or exploring accelerated death benefits if you have a long-term or terminal illness.

Factors to Consider:

• Ongoing Life Insurance Needs: Evaluate whether you need to purchase a new policy with equivalent coverage and the potential cost.
• Less Costly Alternatives: Consider other options if you need cash but want to retain your coverage, such as borrowing against your policy or accelerated death benefits.
• Determining Fair Prices: It can be challenging to know if you're getting a fair price for your policy. Shopping around, using a licensed broker, or consulting financial professionals can help.
• Impact on Your Finances: The lump sum payment may be taxable and could affect your eligibility for state or federal public assistance.
• Impact on Your Survivors: Weigh your current income needs against the future financial needs of your survivors.
• Access to Your Health Information: Buyers of your policy may have access to personal information, including your health status, and may require periodic updates.

Alternative to cashing out: personal loans

If you're struggling financially but don't want to cash out your life insurance policy, you can consider applying for a personal loan. Personal loans are available at banks, credit unions, and from private lenders. They can quickly get you access to the money you need and typically at reasonable interest rates.

Personal loans are distinct from loans against your life insurance policy in that they are not secured by your policy's cash value. This means you don't risk losing your death benefit or the policy itself if you're unable to pay back the loan. However, personal loans usually require a credit check, employment verification, or minimum income requirements, which loans against your life insurance policy do not.

Interest rates for personal loans are generally higher than those for loans against your life insurance policy. They typically range from 5% to 8% for the latter, while personal loans tend to have rates of 10% or more.

Before taking out a personal loan, it's important to consult a financial advisor or accountant to determine the best option for your specific situation.

Frequently asked questions