Early Withdrawal From a Life Insurance Policy
A life insurance policy is meant to provide a source or funds and security to a person's family (or other beneficiaries) after death. With an early withdrawal, the policy can also provide some benefits while the holder is still alive.
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Definition
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A life insurance policy will state that a face amount (say, $500,000) will be paid to a beneficiary after the policyholder dies.
Early Withdrawal
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Under an early withdrawal, the policyholder is allowed to take out a limited amount of money.
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Taxes
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Up to a certain limit, which is defined in the policy, early withdrawals are not considered taxable income.
Effect on Premiums
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The premium the policyholder has to pay often goes up after an early withdrawal.
Effect on Benefits
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Depending on the amount that is taken out and the insurance company's policy, early withdrawals can result in reduced benefits.
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