using Cash Value

Apr 1, 2019

  1. jayre
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    jayre New Member

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    I have a $350K Universal life insurance policy with approximately with a little over $80K in cash value. Say if I want to withdraw $40K from cash value, would it be like withdrawing from my savings account or would this be counted as a loan with interest and do I have to pay it back?
     
    jayre, Apr 1, 2019
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  2. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    A withdrawal will be a pure withdrawal, but it will also cause your death benefit to be reduced.

    A loan is secured by your cash values while you're alive, and is repaid from your death benefit at your passing.

    If the loan is not repaid, interest charges will accrue and be charged against the remaining cash values. If not managed, the loan interest, over time (and I'm talking MANY years - perhaps over 10 years or so), will eat away at the remaining cash values. If the cash values are reduced to zero, the policy "implodes" and it will cause a taxable event for the outstanding loan to be taxed as income in that year.
     
    DHK, Apr 1, 2019
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  3. pfg1
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    pfg1 Guru

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    Keep in mind if you withdraw the $, you cannot put it back in - even if you wanted to. Any withdrawal above cost basis you could have some taxes due on the gain. Most people with substantial cash value borrow against it and repay it back, thus keeping the compounding of cv and db going up. Other factors are age, health, income, age and efficiency of policy, etc.
     
    pfg1, Apr 1, 2019
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  4. jayre
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    jayre New Member

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    As long as I keep up with my monthly payment for the premium, wouldn't my death benefit remain at $350K plus the balance of my cash value?
     
    jayre, Apr 1, 2019
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  5. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    It depends on the death benefit option selected.
    - Generally, death benefit 'option 2' or 'option b' is death benefit + cash values.
    - Death benefit 'option 1' or 'option a' is this formula: Net death benefit = cash values + net amount at risk (insurance) - any outstanding loans.
     
    DHK, Apr 1, 2019
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