Final answer:
Policyowners of Variable Universal Life (VUL) insurance can access their accumulated cash value through policy loans, partial withdrawals, or by surrendering the policy, but there are important considerations like interest on loans and potential reduction in death benefits.
Step-by-step explanation:
Accessing Cash Value in a VUL Policy
When you have a cash-value whole life insurance policy, commonly referred to as VUL or Variable Universal Life insurance, you are given the opportunity to build up a savings component alongside the death benefit your beneficiaries will receive. This savings component is known as the cash value. Over time as you pay your premiums, a portion of these funds contribute to the cash value, which is then invested, allowing it to grow based on the performance of the underlying investments.
The policyholder can access the accumulated cash value in several ways, which can include policy loans, partial withdrawals, or by surrendering the policy entirely. It's important to note that taking out a loan against your policy will typically incur interest, and you are essentially borrowing from yourself since the loan amount is secured against the death benefit. Partial withdrawals may be limited and could reduce the death benefit as well since you're taking out a portion of the funds. If you decide to surrender the policy, you will receive the cash value in full but will also forfeit the death benefit protection.
Cash-value life insurance provides a unique feature by offering a death benefit as well as a potential source of funds that can serve as a financial tool during the policy owner's life. Policy owners should closely review their policy guidelines and speak with their insurance advisor before accessing the cash value to understand the implications and the best strategy for their personal financial situation.