Cashing In On Aflac: Surrendering Whole Life Insurance

If you have an Aflac whole life insurance policy and are considering cashing it in, there are a few things you should know. Firstly, understand that whole life insurance is a type of permanent insurance that offers coverage for your entire life, as long as you continue to pay your premiums. It has a guaranteed death benefit and a cash value component that accumulates interest over time. This cash value can be accessed in several ways, including taking out a policy loan, withdrawing cash from the policy, or surrendering the policy altogether. It's important to weigh the benefits and drawbacks of each option before making a decision.

When it comes to surrendering your Aflac whole life insurance policy, you can expect to receive the cash surrender value, which is the amount of money you'll get if you choose to cancel or terminate your policy. This value is based on the cash value of your policy, which is the sum of money that has built up over time through regular premium payments. Keep in mind that surrendering your policy may result in surrender charges and tax consequences, depending on the timing and amount of your payout.

Before making any decisions, be sure to carefully review your policy documents and consult with a tax advisor and financial advisor to understand the potential implications.

Cash surrender value of life insurance

Cash surrender value is the amount of money a life insurance policyholder receives if they decide to cancel their policy before it matures or before they pass away. This is also known as the policyholder's equity. The cash surrender value is the amount of cash built up minus any surrender charges or fees. These charges reduce over time, so the longer you have had the account, the closer the cash surrender value will be to the cash value. Surrender fees typically range between 10% to 35% of the policy's cash value.

Not all types of life insurance provide cash value. Term life insurance, for example, does not build cash value, so there is no cash surrender value. On the other hand, permanent life insurance builds cash value and is available in several forms, including whole life and universal life. Whole life insurance has a guaranteed premium and cash value, with the same premium paid each month and the cash value growing at a guaranteed rate. Universal life insurance is more flexible, allowing you to increase or decrease your premium payments, but if you pay minimal premiums for too long, it can negatively impact the cash value.

There are several alternatives to surrendering your life insurance policy and receiving the cash surrender value. You can take out a policy loan, where you borrow money against your policy, or make a partial withdrawal from the cash value. You can also use the cash value to pay your life insurance premiums.

If you decide to surrender your policy and take the cash surrender value, you will need to calculate the surrender value. This involves adding up the total payments made towards the policy and then subtracting any surrender fees that the insurance company will charge.

Aflac Whole Life Insurance

Aflac offers whole life insurance plans that can provide for your family in the long term and help in emergencies. These plans do not require a medical exam and are portable, so you can take them with you wherever you go. With Aflac's whole life insurance, you can access the cash value by taking out a loan against the policy, surrendering the policy, or making a withdrawal.

Surrender charges and fees

When you cash surrender your whole life insurance policy, you will be charged a surrender fee. This fee is typically between 10% and 35% of the policy's cash value and decreases each year. The fee is deducted from the cash value, along with any funds required to repay loans or unpaid premiums. The amount of the surrender fee depends on the insurance company and the specific policy. It is important to review the policy documents to understand the surrender charges and fees that may apply.

The timing of the surrender also affects the surrender value. Surrendering the policy earlier in the term may result in a lower cash surrender value since the cash value will be smaller, and you may owe higher surrender charges. On the other hand, surrendering the policy later will result in a larger payout as the cash value will have grown, and you will pay lower fees. Therefore, it is beneficial to wait until later in the policy term to surrender if possible.

In addition to surrender charges, there may also be tax consequences when cashing in a whole life insurance policy. The cash surrender value of the policy may be taxable, and you may owe taxes on any amount received over the policy's basis or the amount paid in premiums. It is important to consult with a tax expert to understand the potential tax implications of surrendering your policy.

Before surrendering your policy, it is essential to consider the alternatives available to access the cash value of your policy. These alternatives include borrowing against the cash value, withdrawing from the cash value, or using the cash value to pay premiums. These options can provide you with access to cash while maintaining your life insurance coverage. However, they may also have their own fees and charges associated with them, so be sure to review the terms of your policy carefully.

Tax consequences of cashing out

The cash value of a whole life insurance policy is generally not taxable as it grows within the policy. However, you may face tax consequences when you cash out or surrender your policy. Here are the key points to consider:

• Tax-Free Withdrawals: You can generally withdraw an amount up to your total premium payments without owing taxes. This means you can withdraw the principal amount tax-free.
• Taxable Withdrawals: Withdrawing more than your total premium payments may result in taxes. If you withdraw gains or dividends, they will typically be taxed as ordinary income.
• Surrender Charges: Surrendering your policy early may result in surrender charges, which are deducted from the cash value. These charges decrease over time, and you may avoid them if you surrender the policy later.
• Taxable Interest: When you surrender your policy, you may receive interest earnings along with the cash value. This interest is typically taxable. If you receive a $20,000 cash value payout, and $2,000 of that is from interest, you will likely owe taxes on that $2,000.
• Outstanding Loans: If you have any outstanding policy loans when you surrender your policy, the insurance company will deduct the loan amount and interest from the cash surrender value. If the remaining cash value exceeds the amount of premiums you paid, you may owe taxes on that amount.
• Modified Endowment Contracts: If your policy is considered a modified endowment contract, you may have to pay taxes on earnings first before making withdrawals or taking out loans.
• Tax Advice: It is always recommended to consult with a tax advisor or financial professional before cashing out or surrendering your policy. They can guide you through the tax implications and help you report everything properly.

Borrowing from your cash value

The cash value is a portion of your life insurance payment that is put into a savings-like account, which grows tax-free over time. You can borrow against the value of your life insurance policy if your plan has this cash value component.

Pros of Borrowing from Cash Value:

• No formal approval process: There is usually no formal approval process for a life insurance loan because the value of the plan is technically yours.
• No impact on credit: Borrowing against your life insurance will not affect your credit score or history.
• Quick access to cash: You can often receive funds quickly and easily, with no minimum income requirements or hard credit checks.
• Flexible repayment schedule: You can typically pay back the loan at your leisure. However, it is important to ensure that your loan amount does not exceed your cash value, or your coverage may lapse.
• Low borrowing rates: Whole life insurance lets you borrow at low rates with no credit check or fixed repayment date.

Cons of Borrowing from Cash Value:

• Risk of losing coverage: If you are unable to make timely loan payments, you may lose your life insurance plan.
• Reduced death benefit: If the loan is not paid back before the policyholder passes away, the beneficiary will receive a reduced death benefit.
• Tax consequences: If the life insurance policy lapses due to unpaid loans, you may have to pay taxes on it since the tax structure will change. Additionally, there may be tax consequences for withdrawals, depending on the amounts withdrawn and the cash value growth.

It is important to carefully consider the benefits and drawbacks of borrowing from your cash value before making any decisions. Consult with a financial advisor or tax professional to understand the potential tax implications and ensure this strategy aligns with your financial goals.

Pros and cons of cashing out

Pros of cashing out

Cashing out your whole life insurance policy can offer substantial financial assistance for various purposes, from covering unexpected expenses to accelerating your progress toward financial goals. It can be a good option if you switch from whole life insurance to term life insurance, want to work with a different insurance company, or need fast cash.

Cons of cashing out

There are several downsides to consider when cashing out your whole life insurance policy. Firstly, you may face tax consequences for withdrawals, loans, and policy surrenders, depending on the amounts received and cash value growth. Secondly, cashing out can reduce the death benefit for your beneficiaries. Finally, surrendering your policy means giving up your life insurance coverage, which may be difficult or more expensive to replace later.

Frequently asked questions