How to Use Life Insurance While Alive: 9 Ways to Get Cash Quick

“The best things in life are free
But you can give ‘em to the birds and bees
I need money; that’s what I want!”
-from Money (That’s What I Want), written by Berry Gordy and Janie Bradford.

For over 50 years, people have been singing along with the chorus, “I need money –  that’s what I want!” And for those with whole life insurance policies, there are several ways for policyholders to get “a whole lotta money” when needed. For an overview of how to use life insurance while alive to get cash when needed (a strategy that has not been lost on the top 1%), keep reading. And if you’re interested in a deep dive that explores the financial secrets of the 1%, enroll in our free webinar “Surprising Secrets From the 1% Rulebook”. 

How to Use Life Insurance While Alive to Get Cash When You Need It

1. Surrender Your Policy for its Cash Value.

Once seen as the “only” option for using life insurance while alive (if a policy was no longer wanted, needed, or affordable) many policyholders still take this option simply because they do not understand the other options available to them. This isn’t typically the option we recommend as you’ll surrender all policy benefits along with your policy… plus, you may short-change yourself.

2. Sell Your Life Insurance Policy for Cash

As we have talked about in our posts about Life Settlements, one way of using life insurance while alive to get cash when you need it is to sell your policy and the rights to your death benefit. This option has only been widely available the last few decades, and it is increasing in popularity. Selling a policy can work well for people who are very elderly and/or suffering from serious health issues, both of which increase the likelihood that there will be willing buyers. But what if you’re 50 years old and competing in marathons?

3. Withdraw Your Cash Value of a Whole Life Insurance Policy

If you are withdrawing below your “basis” (the amount you’ve paid into your policy), then you can withdraw part (or even all) of your cash value without penalties or taxes. You also don’t have to pay back what you withdraw, as it was your money to start with. This might be a preferable option to a home equity loan or borrowing from your 401(k) or IRA, as there are no penalties, taxes, or qualifying procedures. However, your cash value stops growing if you withdraw it, so you might prefer the next option if you’re considering how to use life insurance while alive to access cash.

4. Borrow Against the Cash Value on Whole Life Insurance

Typically, people borrow against their cash value by going directly to the life insurance company for the loan. Since the cash value is collateral and the company has that in its possession, this is also a fast and hassle-free method of how to use life insurance while alive (with no credit checks, pay stubs, or approval process). If the rates at your bank are better, you might be able to borrow from your bank instead, still using your cash value as collateral. (Ask your banker for more information.)

People and even financial advisors often talk about “borrowing your cash value.” But that is a misleading, inaccurate phrase. You don’t actually borrow the cash value itself (nor do you pay back interest to yourself, in spite of what you might have been told). If you’re borrowing from your insurance company, you’re leveraging your cash value by borrowing against it.

5. Borrow Against Your Death Benefit

In some situations, you might be able to leverage your policy to borrow from a bank or a private individual, using your death benefit as collateral. As discussed under No. 1 (selling your policy), this isn’t an option unless you’re in your 80s or 90s. But depending on your situation, it might make more sense than selling your policy. And if you require the money for medical care, find out if your policy provides the following benefit…

6. Receive an Accelerated Death Benefit

Whether or not you have this option available to you will depend on what options and riders you choose when purchasing your policy. To get an insurance policy review, contact your life insurance company. They’ll be able to tell you if an accelerated death benefit is available to you. If you do, you may be able to receive a portion of the face value of the policy (the total value including the death benefit) by proving you have a qualifying diagnosis or condition.

7. Annuitize Your Policy

In contrast to borrowing against your policy, this is a non-revocable option for how to use life insurance while alive that should be used only late in life with the guidance of a professional. Most insurance companies offer this option. Not unlike a reverse mortgage, this option will allow your policy to start paying you. You would select a time period, such as 10 or 20 years, life expectancy, or life plus a certain amount to the beneficiaries. You would receive a specified amount of income each month during that time frame.

8. Take Your Dividends Out in Cash

If you’re just looking for a little extra cash to make the difference between surviving and thriving, this may be your ticket. Typically, anything realized from a dividend-paying whole life insurance policy is used to purchase paid-up additions, but instead, they can be received in tax-free cash up to your basis.

9. Set Up a Charitable Remainder Trust with your Policy

Finally, when considering how to use life insurance while alive to access cash, don’t overlook the option of charitable remainder trusts. You can use these trusts to sell a highly appreciated asset (including real estate, stocks, or a business) in a way that reduces capital gains taxes and also benefits the charity. It’s also a way for the person donating the policy to get an income stream, which comes from the charity that invests the money from the asset.

For more information on this and other options, see my book Live Your Life Insurance. You can get a hard copy from Amazon or purchase it in downloadable digital ebook or audio formats at ProsperityThinkers.com.

Do you simply want to eliminate your premium payments? If you’ve had your policy for a while, it might be possible to do – while keeping your policy. Read “Stop Your Premium Payments… and KEEP Your Whole Life Policy!” to find out more.

Do you need help understanding your policy and options? We can help! For a limited time, we are offering a No-cost, No-obligation, Life Insurance Policy Review.

Whether you’re considering using life insurance while alive to get cash and want to weigh your options, or you simply want to understand the benefits of your policy, we’d love to talk with you. We use advanced analytics tools such as the whole life insurance policy cash value calculator to help you get the most out of your insurance policy.