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5 Ways to Cash Out a Life Insurance Policy

dateKnowledge Centre Team dateApril 19, 2021 views121 Views
5 Ways to Cash Out a Life Insurance Policy

You might have heard a million times that a life insurance policy is a must-have if you are the only earning member in your family, as it assists in safeguarding the future of your loved ones in case of your untimely death.

However, you might be surprised to know that apart from protecting your family after your demise, there are life insurance policies like Invest 4G can also prove to be extremely beneficial at the time when you are facing a severe financial crisis.

While it is not considered morally right to cash your life insurance by jeopardising your long-term purposes or the monetary future of your loved ones, you can always use these life insurance policies as an immediate income option when there is no other way left to generate liquidity.

5 Smart Ways for Cashing Out a Life Insurance Policy

A term or whole life insurance creates a reserve from the surplus earnings and premiums, and these accumulations are deposited in the account of the policyholder. However, you must note that you must only cash out a life insurance policy at the time of extreme financial crisis, as it can also have severe repercussions in the long run. A life insurance policy allows the policyholder to cash out their policy in various ways at the time of economic difficulties that are mentioned below.

1. Complete Withdrawal

If you are under a financial crisis or operating on low funds, or maybe you just need to make a big purchase for your home or business, then withdrawal is the most prevalent way to cash out your life insurance policy. At the time of withdrawal, the policyholder holds the absolute right to decide whether they want to draw out a partial amount or the whole amount.

Depending upon your life insurance policy and the amount of your cash value, this process of withdrawal could either reduce your death benefit coverage amount or even get lapsed. Apart from this, the process of withdrawal is also not tax-free. If the policyholder withdraws the sum deposited with the initial 15 years, the amount withdrawn by the policyholder will be subject to taxation along with an early withdrawal penalty of 10 percent if the person is below 60 years of age.

2. Taking Out a Loan

Another most popular way to cash out a life insurance policy is to draw out a loan on the said policy. Every cash value life insurance policy that you take enables you to borrow funds from the policy provider where you can utilise your cash-accumulation policy account as security. However, the loan amount and the interest rate might vary according to the type of life insurance policy you have opted for.

3. Surrendering your Life Insurance Policy

When you are under a complete broke situation and taking a loan on your life insurance plan won't work, you have the option to fully surrender your policy and draw out the complete term life insurance cash value.

However, before choosing to surrender, you must keep various factors in consideration. The foremost point that you must bear in mind is that giving up on your life insurance policy will leave nothing for your loved ones, and they will receive no financial security in case of your untimely demise.

Apart from this, many life insurance policies charge a taxable surrender fee from the policyholder and further reduce the amount of the policy. In case if you have an outstanding loan on your policy, then this amount can further get reduced, and you might also be subject to a higher tax rate.

4. Life Settlement Method

Under this cash-out option for a life insurance plan, the policyholder can trade their life insurance policy to a life settlement organisation or any other individual in place of cash or monetary compensation. Whether you have chosen to buy a single premium insurance plan or you may have chosen a different mode of premium payment. The new buyer of your policy will keep the policy running by paying regular premiums and also receive the mortality benefit at the time of your demise.

However, to avail of this life settlement benefit, the policyholder must be at least 65 years of age, and the main advantage of receiving this life settlement is that it is more beneficial than surrendering your life insurance policy. While this life settlement is the most suitable method to cash out your life insurance policy, the only drawback it holds is that this method is not government regulated, and you cannot be 100 percent assured that you are receiving the right amount.

5. Build your Portfolio

Cash-value life insurance has become extremely popular amongst investors in the present times and also among people who are looking to enhance their retirement earnings. If you have acquired strong cash value in your term insurance plan, you can invest these funds for investing in equity or any other financial instruments to diversify your portfolio.

ULIPs for planning your retirement

This diverse portfolio will assist in saving a lot of funds for you and your family past your retirement or in case of your unfortunate death. However, you must always consult your financial advisor before investing in any financial instrument so that you get a better understanding of how to adjust your investment portfolio.

Financial trouble can urge you to consider selling your insurance policies and assets for cash. While cashing out a life insurance policy can assist you in coming out of a financially draining situation, it must always be used as the last resort. You must always invest in a life insurance policy that holds the option of cashing out in times of financial crisis.

Invest 4G life insurance plan by Canara HSBC Oriental Bank of Commerce Life Insurance is one such amazing policy that offer various benefits to the policyholder. It is a Unit Linked Insurance Plan that is considered as a good investment even for short-term gains. Remember, that a term insurance do not have any cash value, but savings cum protection plans like Invest 4G can help you during an economic meltdown.

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Frequently Asked Questions (FAQs) for Life Insurance

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of www.canarahsbclife.com.

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age:It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chances of contracting diseases is low. Young people also opt for policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender:The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits:The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term:Policy terms are also taken into consideration by insurers while deciding the premium amount. Policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation:The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physicianâ s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence. There are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: An insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the policy, the insurance companies generally pay 80% of the total premiums paid.

Buying life insurance online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. Online insurance policies also offer higher benefits. Customers should, however, buy online policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one policy to increase the cover or avoid claim rejection. In case of multiple policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In the case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy life insurance, the insurance company asks for the nominee details. Only the person named as the nominee in the policy can cash out a life insurance policy in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in the case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term. The family receives the death benefit. In the case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment options are chosen the policy works as a source of regular income.

It is a popular misconception that life insurance is only for accidental deaths. A term life insurance plan like iSelect also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy life insurance in your early 20s because it’s is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy life insurance at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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