Calculate the Cash Value of Life Insurance

Jan.31.2021
Calculate the Cash Value of Life Insurance

There are certain circumstances in life that may make it necessary to withdraw the cash value of your life insurance. Some of these circumstances can’t be helped (sustaining an injury and needing medical treatment, for example), but some are just circumstances where you want a little cash and don’t have it in pocket (to open a new business, for example, or to enjoy retirement with some kind of trip or event). In such situations, you need a way to get a lot of cash fast. A life settlement for seniors is a perfect option for accomplishing this. 

 

When considering whether or not to cash out and sell a life insurance policy, there is just one big question to ask: How much is the cash value of a life insurance policy? Unfortunately, the answer isn’t cut and dry. Cash value is calculated based on several factors. This article will take you through them so you can make the best decision on getting a life settlement.

What Is the Cash Value on Life Insurance?

How Much Is the Cash Value of a Life Insurance Policy?

When working with life settlements for seniors, the cash value of a life insurance policy must be calculated before any real work can be done. There are several basic factors that the buyers of a life insurance policy use to calculate:

  • Age. Life settlements are ONLY for seniors. This is because the purchaser of a life policy takes over paying the premiums and does not want to do this for dozens of years. The nearer the policy seller is to death, the less the buyer will have to pay in premiums. For this reason, life settlements are not offered for anyone under 65.
  • Life expectancy. There are several aspects of health that must be considered, including illness/medical history, smoking habits, gender, etc. These are the factors that help you determine how long a buyer will have before they can cash out your policy.
  • Policy premiums. Depending on when the policy was opened and how much you have already paid into it, the premium amounts could vary significantly. In general, a buyer will take into account how much they will need to pay after purchasing the policy.
  • Policy death benefit. In order for a policy to be eligible for a life settlement, it must be valued at at least $100,000.
  • olicy cash value. The more you’ve paid over the years, the more cash value your policy will hold. Buyers like larger cash values.

After all these factors are taken into consideration, the cash value of your life insurance policy is calculated and a buyer will make an offer. However, that’s not the end of the story.

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How Is Life Insurance Surrender Value Calculated?

If you don’t take the life settlement for seniors option and decide to surrender your policy (i.e., cancel it), the cash value will be calculated a little differently. In this case, the policy will be taken by your insurance company and you’ll receive a portion of the cash value you built up.

 

If your life insurance policy is a whole life, permanent life, universal life, or variable life, you will start earning cash value as soon as you open the policy. With each premium you pay, part will go to your death benefit, part will go to any administrative fees, and part will go to the insurance company to be invested on your behalf. That investment portion is where you get the cash value. 

How Much Will I Receive If I Surrender My Life Insurance Policy?

However, you don’t get the whole cash value when you cash out your life insurance. The net cash value of life insurance is calculated by a few factors:

  • How long you have been paying into your policy
  • The market performance for your investment portion
  • The surrender fees your insurance company will charge you

There is a surrender period on many policies. This is a time set by the insurance company that you must wait before surrendering your life insurance policy . 

Which Type Of Life Insurance Policy Generates Immediate Cash Value?

Not every life insurance policy generates cash value immediately. Only permanent life insurance policies will earn you cash value. The two most basic permanent life options are whole life and universal life policies. The cash value for whole life insurance is typically available much quicker than the universal life cash value. 

  • Whole life policies provide a guaranteed cash value calculated by the insurance company and available to you immediately or a month after you open your policy.
  • Universal life policies earn cash based on interest rates and have a 10-year surrender charge period, which means you can’t receive your full cash value in those first ten years. 

Of course, there are many other types of insurance policies within those categories. Before you make a decision about selling or surrendering your policy, you should speak with an expert who can help you decide the best course of action.

FAQ

Q: Is there a penalty for cashing out life insurance?

A: There is no penalty for cashing out life insurance. However, you may have to pay fees to your insurance company or taxes on what you receive if it exceeds the surrender value of your policy. In addition, you will have no benefit left to leave to your loved ones.

Q: Are there ways to get cash without pursuing a life settlement for seniors?

A: Yes. You can withdraw a portion of cash from your policy or take out a loan. You can borrow from cash value to pay off your premiums. You can also simply cancel or surrender your policy to the insurance company. 

Q: What should I use my life insurance settlement for?  

A: It depends on your circumstances. If you are ill and have medical expenses, you can use your cash value for the bills. You can also use it for personal reasons like vacations, retirement funds, or starting a business. 

Q: When should I consider a life settlement?

A: Usually, the best time to consider a life settlement is when you no longer need it. If your beneficiaries are provided for and you are struggling to pay the premiums, it could be a good time to consider cashing out your policy. 

Q: Will my life settlement be taxed?

A: The principal portion, or the amount you have paid in premiums, will not be taxed. However, you may be taxed on the interest and dividends you have earned over time.

Cash Value Calculated

These are the basics of calculating a life insurance cash value. However, depending on the type of policy you have and how long you’ve been paying on it, you may need to consider other factors. Talk to a professional to learn more and decide if taking a life settlement for seniors is the best choice for you.

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