There was a time when almost no one would have considered cashing out a portion or all of their life insurance policies early. Although you can opt to cash out portions or even a life insurance policy in its entirety minus penalty fees, should you? It is not without risk and you should weigh that carefully before making such a decision.
You have to think carefully about your financial holdings before making such a choice. The reason most people buy life insurance is so that they and not their loved ones, can pay for funeral and burial costs when they die. For this reason you would want to make sure to leave enough money in your life insurance policy to cover those expenses. Funeral and burial costs combined can cost anywhere from $8000-$10,000 as of today. With time, inflation will increase these costs, and you need to do some calculating of what costs could be in the future in determining how much to leave in your policy. The coverage amount that will be paid out in life insurance varies from policy to policy and so do the restrictions on those policies and the amounts they will pay. If you only have a $30,000 life insurance policy, don’t touch it unless you have other money that could be used to cover death expenses that you aren’t planning to leave family.
But you can safely cash out portions of life insurances with pay out amounts higher than $100,000., and use some of that money to travel and buy things in retirement that you want now. Your life insurance policy likely has a penalty fee for withdrawing portions or whole amounts of your policy, but these fees may be worth it to you. Especially if it would mean that you could afford to travel to destinations around the world that you have always wanted to see, but didn’t have the money to visit them before. Or you may wish to gift family and friends with money and other things while you are still living so that you can see their enjoyment.
There are people too who choose to cash out life insurance policies because they have been diagnosed with a terminal illness and need expensive care, and those that suddenly need long term care they had not planned for and cannot afford. Faced with such hurdles, it is not hard to understand why someone might choose to cash out portions of a life insurance policy to pay for expensive and long term care.
Before you send a letter off to your life insurance carrier requesting a partial or whole payout of your policy, speak to someone with experience with life insurance policies to determine if this is the right move for you.
The internet is an information warehouse on many subjects including the various types of life insurance policies, the rules regulating them, benefits versus risks of early policy cash outs, and much more. You may even decide that you need a term life insurance instead of the traditional life insurance. It is recommended that you immerse yourself in learning as much as possible about life insurance so that you know what life insurance is and isn’t .This is learning that will benefit you greatly by demystifying the subject of life insurance that can be confusing to many. The more knowledge that you have the better position you put yourself in for making the decisions that are right for you and your financial situation. . It just may be that cashing out early on your life insurance policy and using that money for a more colorful retirement or for extended or hospice care is the right decision for you based on your needs.