If you need extra income to pay medical expenses, college tuition or pay off your mortgage, cashing out your life insurance policy is an option. When cashing out a policy, consider how much you will receive from the insurance company or a life settlement broker as well as the amount you may have to pay in income or capital gains tax. Depending on your needs, it may be better to take out a loan on the policy instead of cashing out.

Cash Out Life Insurance Policy

Review your life insurance policy to determine if you have been accumulating cash value. Most whole life and universal life insurance policies accumulate cash value over time. You should receive monthly statements indicating how much interest the policy has been accumulating. Contact your life insurance agent to discuss cash out options. If selling your policy back to the insurance company, you will receive the amount accumulated from the time you purchased the policy, not the insurance amount you purchased. Depending on your reasons for cashing out, consider converting a whole life or universal life policy into a long-term care policy. These policies help cover the costs of medical care in advanced age. Nursing home, hospice care and assisted living care are some of the costs covered.

Life Settlement Broker

Consider selling your insurance policy for its "intrinsic value" through a life settlement broker. Your policy will be bought by a third party, which may lead to a higher cash out amount than the amount you would have received from the insurance company. The amount you receive depends on your age and your overall health. Policyholders who are closer to death usually receive a higher payment because the buyer will be able to cash out the policy in less time than if the policyholder is younger or in better health. Research life settlement brokers to determine which one can best handle your policy. Use the Better Business Bureau to determine the legitimacy of life settlement brokers.

Life Insurance Loan

If you do not want to sell your life insurance policy, you may be able to take out a loan against the policy's value. Not only will you be able to maintain the policy, you will also avoid having to pay income or capital gains tax, which you would face if you had cashed out the policy. Choose to repay the loan or allow the loan amount to be deducted from the payout amount after your death. A life insurance loan can be used to pay off a mortgage, pay for medical expenses or for any other purpose.

Source:

Finweb.com: Steps For Cashing A Life Insurance Policy

Miamiherald.com: A New Lease on Life Insurance

Seniorjournal.com: What a Good Long-Term Care Policy Shoulde Include

More Information:

Insure.com: Cash value in life insurance:What's It Worth To You?