When the cash value or the amount you have paid into your whole life policy matches the death benefit, it has reached its maturity date. Typically, insurance companies design policies to mature when you turn 100, but some recent policies extend the maturity date to age 120. Technically, you can't change your maturity date, but you can access the cash value of the policy through tax-free loans or by surrendering the policy.
When you think about it, changing your maturity date is really unnecessary. If you want to make the date earlier to access your cash value, you can accomplish that by cancelling the policy or taking out a loan on the policy. If you want to move the date into the future to lessen or eliminate your premium payments, you can use the cash value of the policy to purchase a reduced paid-up policy. Also, many insurers give you the option of keeping the cash value in the policy after the maturity date and paying it out as a death benefit after your death to avoid tax consequences.
The owner of a whole life policy can borrow from the loan value of the policy. This amount is based on the cash value that has accumulated in the policy. The policy owner does not have to qualify for the loan, as the cash value serves as collateral to secure the loan. If the loan is not paid back by the time the insured dies, the loan amount is subtracted from the death benefit. Typically, the interest rates are around 8 percent.
Surrendering a Policy
The owner can take out the cash value by surrendering or cancelling the policy. This can result in fees, especially in the early years of the policy. The cash surrender value of a policy is equal to the cash value minus surrender charges, loans, interest and other contract fees. The life insurance contract spells out the costs of the surrender charge. It is usually a percentage of the cash value that gradually decreases and disappears over the life of the policy. The amount of the cash value that exceeds premium payments is taxed as income. Once the owner cancels the policy, the death benefit ends too.
Paid-up Life Policy
Some whole life policies enable the owner to stop paying premiums after a certain period of paying into the policy. This occurs when the cash value reaches a level that allows the purchase of a paid-up life insurance policy with a reduced death benefit. The insurer determines the paid-up death benefit based on the amount of the accumulated cash value of the policy.
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