How to Use Cash Value in Retirement
When you own a cash value life insurance policy, you own a product that builds a cash value savings over the life of the contract. This cash value savings may be used to supplement your retirement income. If your policy's cash value is significant, it can become your sole or primary source of income during retirement. But, you must understand how to properly use the policy's cash value or you could end up losing the policy and wind up with a large tax bill in your old age.
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Instructions
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Gather your life insurance policy information. Your life insurance policy statement should show you your current life insurance policy cash values. It will show you your total cash values and available cash values. The available cash value is what is available for you to use during retirement.
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Contact the insurance company and request a policy loan or withdrawal. Whole life insurance that pays dividends may offer limited withdrawals based on the amount of paid up insurance (dividends) in the policy. Universal life insurance normally offers withdrawals of the entire cash value.
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Check your annual statements. Make sure you are not taking policy loans or withdrawals that exceed the interest being credited to the policy. If you are, the policy's values will decline. If the policy's cash value falls to zero, the policy will lapse. If this happens, you will be taxed on all of the gains in the policy at ordinary income tax rates. The gain in the policy is the amount of cash value in excess of the total premiums paid. Also, if you are taking withdrawals, any withdrawal in excess of the total amount of premiums you've paid will be taxable as ordinary income.
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Spend the cash value on your normal retirement needs. Some life insurance companies allow you to take monthly loans and will send them to you automatically. Other companies offer only annual loans and you must budget your money for the year.
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