What are Withdrawals in Insurance? Everything You Need to Know

In the context of insurance, withdrawals refer to taking money out of a cash value life insurance policy. This is different from a policy loan, where you borrow against the policy's value and must repay it with interest.

In this guide, you'll learn:

  • How withdrawals work for different types of insurance policies
  • The tax implications of taking withdrawals
  • The difference between withdrawals and policy loans
  • Potential benefits and drawbacks of taking withdrawals

Table of Content

Text reads, "Insurance withdrawals are the process of taking money out of a cash value life insurance policy."

Key Takeaways:

  • Insurance withdrawals allow access to cash value, but may impact your policy's value and tax situation.
  • Withdrawals differ from loans in terms of repayment, impact on policy, and tax treatment.

How Withdrawals Work

There are a few different ways you can take a withdrawal from your life insurance policy:

  • Partial Withdrawals: You can take out a portion of your policy's cash value. This may be subject to surrender charges, which are fees for taking money out of the policy early.
  • Full Surrender: You can surrender the policy entirely, receiving the entire cash value minus any surrender charges. This will terminate the policy.

Tax Implications

Withdrawals from life insurance policies are generally tax-free up to the amount of your basis (the amount you have paid in premiums). Any withdrawals above your basis may be subject to income tax.

When to Consider Withdrawals

Withdrawals can be a useful tool for accessing your policy's cash value. However, it's important to consider the potential drawbacks, such as the impact on your policy's value and the potential for taxes.

If seeking a licensed professional, consider our services. Our insurance advisors and client support team are here to assist you with your insurance needs.


This guide has offered a comprehensive overview of withdrawals in the context of insurance. For those seeking to deepen their understanding, we recommend exploring our guide on Cash Value Life Insurance, which dives into the intricacies of this type of policy and its implications in greater depth.

Withdrawal FAQ

What is the difference between a withdrawal and a loan on a life insurance policy?

A withdrawal permanently reduces the cash value and death benefit of a policy, while a loan is borrowed against the cash value and must be repaid with interest. Withdrawals are generally tax-free up to the basis, while loans are not taxable unless the policy is classified as a modified endowment contract (MEC).

Are withdrawals from life insurance taxable?

Withdrawals are generally tax-free up to the amount of premiums paid (basis). Any amount withdrawn beyond the basis may be subject to income tax.

What are surrender charges in insurance?

Surrender charges are fees imposed by insurance companies when policyholders withdraw cash value or surrender the policy early. These charges can significantly reduce the amount of money received.

Can I borrow against my life insurance policy?

Yes, you can typically borrow against the cash value of a permanent life insurance policy. This is known as a policy loan, and it usually accrues interest.