How to Use Cash Value to Purchase Paid Up Life Insurance
Life insurance policies that provide a cash value savings as part of the policy design offer you several choices as to what you may do with the cash value. For many individuals, the cash value functions as a savings. This savings may be used for any purpose. While it is not being used, the savings is invested by the insurance company. However, if you would like to use your cash value for some other purpose, like buying paid up life insurance, you'll need to understand the process.
Other People Are Reading
Instructions
-
-
1
Gather all of your life insurance information. You'll need your existing policy number along with a life insurance application for a single premium life insurance policy or a limited pay life insurance policy. You'll also need 1035 exchange forms. All of this paperwork is available from your insurance company upon request.
-
2
Fill out the application for the single pay life policy or limited pay policy. A limited pay policy is a policy that is guaranteed to be paid up within a set number of years, usually 10 or 20. A single pay policy is a life insurance policy that is paid up within the first year and only accommodates one premium payment.
-
-
3
Fill out the 1035 exchange forms. The 1035 exchange forms allow you to transfer the cash value of your existing policy to a new life insurance policy without paying tax on the transfer. Instead of surrendering the old policy, the policy is effectively converted to the paid-up policy.
-
4
Turn in all forms to your insurance company. You may be required to go through another health exam for the new policy. Normally, this is only applicable when the death benefit is greater than your existing policy's death benefit. After you've turned in your paperwork and gone through any additional underwriting, you'll receive your new policy and the cash value will be used to pay for the new policy, which will be paid up using your existing cash value.
-
1
