Withdrawal Value

"Withdrawal Value" refers to the amount of money that a policyholder can withdraw from the cash value component of a life insurance policy, such as a whole life or universal life insurance policy, without canceling the policy. This feature is part of the savings or investment aspect of permanent life insurance policies, which accumulate cash value over time as part of the premiums paid by the policyholder are invested by the insurance company.

Key aspects of Withdrawal Value include:

1. Cash Value Accumulation: Over time, a portion of the premiums paid into a permanent life insurance policy contributes to its cash value, which grows based on interest, dividends, or other investment gains, depending on the type of policy.
2. Access to Funds: The withdrawal value represents the accessible part of this cash value that the policyholder can withdraw for personal use, subject to the terms and conditions of the policy.
3. Impact on Coverage: Withdrawing funds from the cash value of a life insurance policy reduces the overall cash value and may reduce the death benefit unless the withdrawn amount is repaid. Policyholders should consider the impact of withdrawals on their policy's benefits and their beneficiaries.
4. Tax Implications: In Canada, withdrawals from the cash value of a life insurance policy may have tax implications. The tax treatment depends on the amount withdrawn relative to the policy's adjusted cost basis (ACB). Withdrawals exceeding the ACB may be taxable.
5. Flexible Financial Tool: The ability to withdraw from the cash value offers policyholders flexibility to address financial needs or opportunities without having to liquidate other assets or take out a loan.
6. Policy Terms: The specific terms regarding withdrawals, including any fees, minimum or maximum withdrawal amounts, and the impact on the insurance coverage, are detailed in the policy contract. Policyholders are advised to review these terms carefully and consult with their insurer or financial advisor before making a withdrawal.

The Withdrawal Value of a life insurance policy is a valuable feature for policyholders, providing a source of funds that can be accessed relatively easily. It adds a layer of financial flexibility to the long-term protection offered by permanent life insurance, making it a component of broader financial planning and security.