How to turn your life insurance policy into a cash machine

I don’t know how many of my readers this will apply to, but it’s too good not to share. I got an alarming notice from my insurance company the other day that the premiums are going to increase on my universal life policy and I should consider increasing the premium payments.

If you don’t have a universal life policy (or don’t even know what that is) stop reading here. If you do, take a look at the annual statement of value you receive. That’s what I did when I got this notice and I discovered my policy has a guaranteed interest rate on the cash value, which is what’s left over after the premium is deducted, of 5.5%.

There are not many things you can safely earn 5.5% on these days, so I asked the insurance rep if I increased my payments, not by the few dollars required to cover their premium increase, but by hundreds of dollars a year, would they still have to pay me 5.5% on that surplus? The answer is yes. So it in effect becomes a savings account that pays 5.5% compounded with each payment.

I’m not going to name the company (they are a former client, actually) and it doesn’t matter because your situation will be different. But if you have an old policy with a fixed low minimum interest rate that’s not so low any more, this is worth checking out.

P.S. This strategy only works if you plan on liquidating the policy for its cash value at some point before you die. If you die, your heirs will have the choice between the face value and accumulated cash value, which will probably be less.