Assuming your policy is a non-MEC, when you choose to utilize the cash value, there are a number of approaches that can be taken.
The first approach is to take cash withdrawals from the cash value. When you take a cash withdrawal from a policy, up to your tax basis, the money will be non-taxable (these are after tax dollars being returned to you) and interest-free (this is not a loan). However, you cannot access the growth in the policy tax-free through withdrawals. You withdraw a portion of your tax basis in the policy, but this will have an impact on future growth. Because you are liquidating some of your cash value and not taking a loan, your cash value balance decreases. The catch is an opportunity cost associated with that strategy. In certain circumstances, this is a wise approach, and agents at Paradigm Life can help you strategize when to use this approach versus another.
The second approach is to take loans against the cash value. When you take a loan and access the money (including the growth), it is a non-taxable event. However, as with almost all loans, there is an interest rate associated with the loan. This rate will vary from carrier to carrier, and from time to time. If you pass away with an outstanding policy loan, the death benefit paid to your beneficiaries will be reduced by the outstanding loan balance. In actuality, you have used your death benefit during your life, rather than passing all of it to your beneficiaries. When using policy loans, there is an effective strategy that we at Paradigm Life help you utilize. At Paradigm, not only do we properly structure your policy, but we continue supporting you throughout the life your policy.
The third approach is to combine strategies one and two. This can be ideally suited for a retirement income. At Paradigm Life, we structure a comprehensive plan with you to ensure we are utilizing the cash value in your policy as efficiently and effectively as possible.
When a policy is properly structured, and your cash value utilization is properly analyzed and planned, you can have access to the cash value, including the growth, tax free. Contact Paradigm Life to consult with an agent regarding tax-free, cash value utilization.