If you are in a financial crisis at the moment, and if you have a whole life insurance policy, you may be tempted to cash it out. Maybe your insurance company doesn’t provide that opportunity to cash out a policy that has matured to a certain point, but there may be other companies that buy up life insurance policies.
If you’re considering cashing out to help pay for medical expenses now, cover your mortgage in the event you lose your job, or anything else, ask yourself the following five questions before you do.
1. How much do you stand to lose by cashing out? When you cash out a life insurance policy, you are not going to get back what you put in. Consider how much you could lose on what you already put into the policy compared to what you can get out now.
2. How will you protect your family in the event of an accident? What would happen if you were to die in an accident tomorrow and just cashed out your policy? Would they be able to cover the funeral expenses or maintain their quality of life for very long?
3. Do you have other viable options to help cover these expenses? Credit cards, home equity loans, and maybe even a reverse mortgage might be a better option for you at this time.
4. How much would a new life insurance policy cost you if you were to start up in a few months? Maybe when you took your life insurance policy out you were much younger and in better health. Now your health could cost you a great deal more every month if you were to get a new policy in the near future.
5. Is your insurance broker encouraging you to cash out? In most cases, a broker who truly cares about his or her clients is going to encourage them to avoid cashing out their life insurance policy simply because it isn’t cost-effective. However, sometimes emergencies arise that nobody can foresee and if that’s the case, that may very well be an option at this time.