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The “What’s If’s” on your Whole Life Insurance Policy

You have been paying the premium on your whole life insurance policy for a number of years. Some unexpected medical bills or a college tuition has come up where you can use those dollars than paying for a life insurance policy. You have three alternatives options. These options are called your policy’s nonforfeiture options. These options are:

1. Cash surrender value — you will receive a lump sum check from the insurer for the cash surrender value of the policy. Normally cash value will begin to build up beginning after the policy’s three or fourth year. Income taxes may be due on any money that you receive from the insurer above the total premiums that you paid into the policy over the years. The policy will cease after you surrender it to the insurer for cash value.  You can also just borrow cash from your policy. Interest will be due on the loan value.

2. Reduced Paid- Up Insurance — your accumulated cash value buys a single premium paid-up whole life insurance policy. For example, twenty years ago, you bought a $250,000 whole life policy. Today you do not want to pay the premium going forward. Your insurer will issue you a new $110,000 whole life policy that is paid up for the rest for your life. No new premiums will be due.

3. Extended Term Insurance — this option will convert your whole life policy to a new term policy. Term life insurance only provides a death benefit (the face amount of the policy) with no cash value. The new term policy will last a certain period of time. For example, if you have a $250,000 whole life policy, you will now have $250,000 of term insurance for say 10 years, six months and five days. No premium will due during this 10 year, 6 month period. However, your life insurance coverage will end at this period.

You can call your insurer or your insurance agent/broker to find out your three nonforfeiture values before you choose an option.

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