A. You have three options to consider, but first, you need to understand the two components in your permanent life insurance policy:
a. Face value - the amount will be paid to your beneficiaries when you die.
b. Cash value - the savings account that is funded by a portion of your premium/
If your beneficiaries don't need the death benefit of your life insurance policy, you have three options to get cash from it without selling it:
1. Partial withdrawals
2. Take policy loans
3. Trade life policy for an annuity
It's important to understand the tax consequences of each option.
You can withdraw your basis - the amount in the cash value account that is from your paid premiums, tax free. Any withdrawals beyond what you have contributed will be counted as your income. The death benefit will be reduced by the total amount you withdraw.
Take Policy Loan
If you need occasional cash, you can borrow from your policy without tax, there might be interest charge, and if you don't pay back the loan, the balance will be deducted from your death benefit when you die.
Trade Life for Annuity
You can do a 1035 exchange by converting your life insurance into an income annuity without paying taxes on your gains. With an annuity, there will be no death benefit for your beneficiaries, but you will no longer have to pay premium and you will have income for the rest of your life. While the conversion is tax free, your annuity payout will have tax for the portion that is part of your gains.