Using Cash Value Life Insurance for Real Estate

Key Takeaway

You can use cash value life insurance for real estate, like buying a house or fixing up a rental property, by taking out a loan on your life insurance, withdrawing your account value amount, or fully surrendering your product.

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According to life insurance solutions education, one of the greatest benefits of cash value life insurance is that you enjoy the flexibility of spending your earned savings in whatever way you’d like, whether that’s paying the bills or splurging for a vacation. Nowadays, some people are putting their savings into real estate, maximizing their investments.

What Is Cash Value Life Insurance?

‘Cash value life insurance’ typically refers to a type of permanent life insurance–either universal life insurance or whole life insurance. These types of products come with an account value amount that grows over time as you pay your premiums, offering you simple and easy access to capital. They’re like a savings account, but they’re attached to life insurance coverage. 

How Does Cash Value Life Insurance Work?

When you pay your premiums on a cash value life insurance product, a portion of it goes to paying for your coverage and benefits. The remaining portion of your premium is deposited into a cash value account. This amount earns interest (usually annually) and taxes are deferred on the earnings. The account value is also usually vested with its performance not correlated to the stock market, meaning that it doesn’t incur losses.

Building Cash Value

It often takes between two to five years to build account value in a life insurance product, so you may have to wait this long before you can use your savings. The speed of earning depends on the type of product and your premium payments. You can ask an insurance agent for an illustrated timeline to know when you can expect to reap your benefits.

Note that some insurance companies may require a minimum loan or withdrawal size, which means that you’ll have to reach a certain balance before you can borrow money. You can use your earnings for different purposes; for example, you can decide on using cash value life insurance for college.

How to Use Cash Value Life Insurance for Real Estate

There are three main methods for using cash value life insurance for real estate. You can withdraw your earnings, take out a loan on your policy, or cancel your product. Let’s break down these options:

Cash Value Withdrawal

A withdrawal involves taking out money from your account value amount without promising to pay it back. Your coverage stays the same and you continue paying premiums, but your earnings may lessen and you may have to build it up again if you plan to withdraw again in the future.

Life Insurance Loan

You can borrow your account value amount with a loan. In this case, your insurance provider will charge you interest on the loaned amount, though this rate is typically cheaper than that of other unsecured personal loans. Plus, you can repay the amount at your convenience. 

Another advantage of taking out a loan on cash value insurance is that, when you repay what you borrowed, your earnings can continue growing at the same rate as if you didn’t take any money out.

Surrender Life Insurance Policy

A full surrender involves canceling your life insurance product. When you do this, you get access to your entire account value balance–without having to cover future premiums or pay interest on a loan. That said, you lose your coverage and you may have to pay some fees for the surrender depending on your life insurance policy terms and conditions. 

Cash Value Life Insurance for Investments

Cash value life insurance is a viable choice for individuals who’d like to help get some financial protection while maximizing their investments. 

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The information above is for educational use only and does not represent insurance, tax or legal advice. It is not a recommendation or solicitation to buy insurance. Please talk to your licensed insurance agent for more information about life insurance and your needs. Please consult with the appropriate professional for tax or legal advice. Guarantees are backed by the claims-paying ability of the issuing insurance company.

Article Author: Meredith Bell
Author Bio: Meredith joined Everly in 2022 and has 20+ years of experience in the life insurance industry. She has held various roles in advertising, marketing, communications, sales and distribution support, and product development. Outside of the office, Meredith lives with her daughter Kennedy and their dog Mavis. Meredith enjoys cooking, camping, gardening, hiking, and bourbon (though not always at the same time). She is a live music enthusiast and an avid reader. Her favorite quote is by Thomas Jefferson: "I cannot live without books." Meredith agrees, but would add cheese, movies, and dogs to that list.

Policies are issued by Everly Life Insurance Company (“Everly Life”), Topeka, KS. Everly Life is not licensed in the state of New York and does not solicit or transact business in New York.

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