Life insurance is a must for anyone who has people counting on them. There are a wide variety of policies you can go with when buying, and many people prefer to use policies that allow for the accumulation of a cash value that grows tax-deferred. The question many have is how exactly do you pull money out of these policies without paying surrender chargers.
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| life insurance |
Most people view life insurance as a means to cover the risk of dying. The policies, however, have many other functions as well. One is to create an environment where growth can occur without paying taxes on it until distributions are made. In many ways, this makes life policies the first 401ks and IRAs that we really had. Premiums are paid into the policy that cover the cost of maintaining the insurance as well as additional amounts that grow in investments either set by the insurance company or controlled by the premium payer. Over time, these investments can become very size able.
So, just how do you go about getting money out of the policy? You can withdraw it in most policies. This is problematic. First, you are going to pay tax on the gains. Second, you are going to pay surrender charges to the insurance company. Combined, these two costs can really put a dent in any growth you had with the policy.
The best method for getting around these problems is to take a loan against the cash value in your policy. Because the money is classified as a loan, not a withdrawal, the money is not taxed and surrender charges are not incurred. Ah, but what about paying back the loan? Most people don’t. Instead, they let the loan sit there and then it is deducted from the death benefit paid out to the beneficiaries of the policy when the insured passes away.
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| the money is not taxed |
Growing cash within a life insurance policy is a smart move. Accessing it via loans is even smarter.
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