How Often Can I Take Money Out of My Life Insurance?
Life insurance policies may provide a cash surrender value. This value is a cash reserve that allows you to spend part of the policy during your lifetime. The frequency of withdrawals from your policy depends on how much money has accumulated in the policy and how you are accessing it. On top of that, many insurers build in safeguards to prevent the policy from lapsing.
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Withdrawals
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You may normally make withdrawals from your life insurance policy anytime you wish. A withdrawal of funds is restricted to universal life insurance type policies and whole life policies in which dividends have accumulated in the policy. Only dividends may be withdrawn from the policy under the whole life arrangement. Some insurers may restrict withdrawals from their universal life policies prior to your normal retirement age.
Policy Loans
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Policy loans are loans against the value of the policy. Instead of withdrawing money from the policy, you borrow against it (similar to taking out a loan against the value of a home). Policy loans are normally allowed in unlimited dollar amounts and unlimited frequency for all policy types up to a maximum percentage of the total cash value. A maximum loan amount of 95 percent of the policy's value may be established to keep the policy in force.
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Overloan Protection
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Regardless of how many policy loans you take during the year, your company may impose an overloan protection feature. This does not restrict the frequency of your loan activity unless you borrow more than the maximum allowable loan amount (i.e. 95 percent of the total cash value). When you borrow more than the allowable amount, the insurer will cease loan activity and convert the policy to a paid-up policy. No further loans will be allowed on the policy.
Consideration
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Consider making policy loans in lieu of withdrawals unless you do not intend to repay the loan or your policy interest rate loan is very high. This is because withdrawals permanently reduce the amount of life insurance of the policy. You won't be able to put money back in the policy to restore the death benefit. Policy loans are open until your death, so you may take as long as you want to repay them.
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