How to Determine the Cash Value of Your Whole Life Policy

Whole life insurance is an investment. Not only are you buying a death benefit for your heirs, you're also getting a policy that lasts for life. Unlike term life insurance that expires after a certain length of time, whole life insurance guarantees that a death benefit will be paid regardless of how long you live. You build the cash value of the policy whenever you make a payment. Part of the premium is applied to a death benefits fund, another portion covers administration costs, and the rest goes into an investment fund administered by the insurer. You can then access these funds after a time, but how much money will be available to you? When can you use it? We answer these questions for you below.

Face Value Vs. Cash Value

The face value of a whole life policy is the death benefit amount. It can't be cashed in until death. Cash value, on the other hand, is determined by how much you've paid in premiums and the growth of the investment fund. When you set up the policy, you can opt to build its cash value more quickly by arranging to pay higher premiums. The more you put into the policy, the more money becomes available prior to your death. The cash value can be used as loan collateral or listed as a business asset. Because it takes time to grow, a whole life insurance cash value is only worth taking after two years. It takes even longer to amass a sizable nest egg, and the investment fund must have performed reasonably well.

When Does Whole Life Insurance Surrender Make Sense?

Unexpected expenses are a part of life. Illness, loss of a job, divorce, and economic downturns can all mean it makes more sense to cash whole life insurance value in than to keep it. The cash value of the policy can also be used to buy a new vehicle without a loan, defray college expenses, or pay off costly credit card debt. A whole life insurance cash surrender value on a policy with a face value of $275,000 after 15 years might be as much as $21,000 depending on how well the investment fund has performed. If you already have other life insurance or are able to switch to a less costly term life policy, cashing in may be the best option for you. Lapses in coverage are not recommended. Remember that it takes a few months to get approved for new life insurance.

Cashing In Whole Life Insurance

Most insurers provide a toll-free number to access the current cash value of a policy. The current value depends on the number of premiums paid to date and the dividends paid by the investment fund. The original policy package usually includes a cash-out form, or you can order one from the insurer. Complete the form, sign it, have it notarized if necessary, and return it to the insurance company. Community property states also require a spouse's signature. A check for the proceeds should be on its way to you within a few weeks.