Wondering how to take money out of an Index Universal Life (IUL) insurance policy? You’re not alone!
Many people think the only choice is to simply withdraw their cash, but there’s a much smarter way to get money out of an IUL. Choosing the right way can help you grow your money, avoid taxes, and keep your policy strong.
Read on to learn why borrowing from your IUL is often the best move for beginners and families who want to make smart financial moves.
How to Take Money Out of an IUL and Get the Most Benefits
Two Ways to Access Your Money
If you have cash in your IUL policy, you can get your money in two ways: by withdrawing it or by borrowing from the policy.
With a withdrawal, you simply take the money out, much like taking money from your savings account.
Borrowing means you take a loan from the insurance company, using your policy as collateral. Most people believe withdrawing makes more sense, but there are hidden downsides.
Why Withdrawing Might Not Be a Good Idea
Taking money out directly sounds easy, but it comes with big drawbacks. When you withdraw, you reduce your cash bucket—meaning your money can’t keep growing.
You also risk not having enough to keep your policy active later. Plus, you could owe taxes on what you withdraw. This can hurt the reasons you got an IUL in the first place.
The Power of Borrowing From Your Policy
Borrowing from your IUL lets your money keep working in the policy, earning interest based on the stock market’s performance.
Even if you borrow $50,000 out of a $100,000 cash value, your full $100,000 keeps growing and earning interest.
The loan comes from the insurance company, so you pay them interest, but if the interest you earn is higher, you can actually come out ahead.
The money you borrow isn’t taxed since your own money never leaves the policy. You’re in control of when and how you pay the loan back, with no set due dates.
FAQ About How to Take Money Out of an IUL
1. Is money taken out of an IUL taxable?
Withdrawing cash directly can trigger taxes, but borrowing against your policy does not count as income and is usually tax-free.
2. Can I borrow from my IUL anytime?
Yes, you can usually borrow from your IUL whenever you need to as long as you have cash value in your policy, without filling out an application or waiting for approval.
3. What happens if I don’t pay back the loan on my IUL?
If you don’t pay back the loan, the amount you owe will lower your policy’s cash value and death benefit. It’s smart to monitor your balance and pay back what you can over time.
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