Can You Cash in a 25-Year-Old Life Insurance Policy?
A life insurance policy that is 25 years old may have substantial cash value associated with it. You may cash in this policy for its cash value, but you should be aware of the impact it might have on you when you do. Life insurance receives special tax advantages that are lost when you cash in the policy.
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Significance
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When you cash in a life insurance policy, you receive the equity value of the policy. This is known as the cash surrender value. The cash surrender value is the amount of money left after you pay any surrender penalties in the policy. The surrender penalty on a 25-year-old policy, however, should be either completely eliminated or very small. In most cases, you should not pay a penalty when cashing in your policy.
Benefit
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The benefit to cashing in your policy is that you get all of the cash value of the policy. This money can be used for any purpose. You may cash in your policy prior to age 59 1/2, without an IRS penalty, which gives you a source of savings outside of your retirement accounts to use as you wish.
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Disadvantage
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The disadvantage to cashing in a life insurance policy is that you will pay income tax on all of the gains you realize in the policy. A gain is any amount of money in excess of the total premiums paid into the policy. If you have paid $10,000 in premiums and have $20,000 in cash value, then $10,000 of that $20,000 will be considered investment gain. You must pay ordinary income tax on this money.
Considerations
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When you cash in a 25-year-old policy, you are losing a life insurance policy. You must surrender your policy. If you lose your death benefit, you should have significant savings to cover any financial obligations you have left when you die. Instead of cashing in your policy, though, consider keeping it and taking a policy loan. Life insurance policy loans do not have to be repaid prior to your death. Also, the policy loan is income tax-free. If you need just a small amount of money, consider making a withdrawal from your policy (if your policy allows withdrawals). The withdrawal, up to the total premiums in the policy, will be income tax-free.
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References
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Comments
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I am having trouble finding info on policies left by my dad when he died, it has been five years and I keep getting stonewalled is it because I live in another country
