Final answer:
Withdrawals from cash-value life insurance policies are typically handled using the FIFO method, meaning the earliest contributions are withdrawn first. This differs from traditional IRAs which are tax-deferred and taxed upon withdrawal. The cash value acts as a loan source that must be repaid with interest.
Step-by-step explanation:
When withdrawing cash from a cash-value (whole) life insurance policy, the method typically used is FIFO, or first-in, first-out. This means that the money that was first paid into the policy is the money that comes out first when you make a withdrawal. It's different from a traditional IRA, where you are taxed on the lump sum upon withdrawal because the account is tax-deferred. The cash value in your life insurance policy accumulates over time and can be borrowed against, with the loan needing to be paid back with interest. This is different from the liquidity of other assets like cash or money in savings accounts, which can be more immediately available for spending. Money out payments from insurance companies include customer payouts, expenses, and any profits or losses.