Options for cashing out whole life insurance policy (to pay for IVF)

[superone!]

I have a whole life policy that my grandparents set up for me when I was 1 year old. I'm now 33. So far I've just left it where it is, letting the dividends pay the premiums and add to the cash value. My plan for a while has been to cash the policy out when I'm ready to buy a house and use it for the majority of the down payment. House buying is probably 1-2 years away.

However--my partner and I are considering fertility treatments, which can (will) get pricey, and aren't covered by our new insurance. We're a same-sex couple--we'll be using her eggs and my uterus with IVF. (I don't want to debate that this isn't the cheapest way for us to get pregnant/have kids--I know--but this is the way we are doing it because _reasons_.) My partner is about to turn 35, and so we've realized that we'd better get a move on, at least with the egg extraction bit.

So I come to the question: I was just thinking that I would go ahead and cash out the policy (pay taxes, obvs) put most of it in bonds or something else stable for using for the house down payment later and use what we need to to get the IVF started. However I was reading that you can actually just withdraw part of the cash value up to the basis and keep the policy active and not pay tax on that withdrawal, though it might decrease the death benefit (and I may have to start paying the premium out of pocket again--$500/year--if the dividends don't cover it).

Does anyone have any experience with whole life policies? Either cashing them out or withdrawing part of them? And is there anything that i'm totally overlooking here in terms of tax impact or other considerations?

Policy has a cash value (as of my annual statement in Dec 2015) of $43,764
Total death benefit is: $197,472

[JoJo]

You'd need to refer to the contract if you can partially withdrawal - not all whole life contracts allow these and doing so may impact the dividends.  They for sure will allow you to take a loan but note that if you do this and surrender a couple years later the taxable gain will include the interest paid on the loan.

I'd recommend that you ask the company or the agent to give you an inforce illustration.  You can ask that they run an illustration showing the distribution. 

As for the cash out, assuming you don't have any outstanding policy loans, the tax will just be on Cash Value minus the premiums paid in.  Also, make sure it is not a MEC - Modified Endowment Contract - or there is an additional 10% tax given your age (probably not but worth to ask if you're getting an illustration.

[superone!]

Thank you, JoJo! That's really helpful. I know next to nothing about life insurance (especially whole life).

[bogart]

I'm no help with the life insurance question but as an IVF mom myself just wanted to wish you and your partner luck.  Not the easiest way to have a kid, but wonderful to have it available when needed.

[cchrissyy]

Check the details of your policy, of course, but usually the loan is really smart way to get access to the funds you need - it's not taxable, you don't ever have to pay it back, just when you die the death benefit is lowered by the balance of the loan. There shouldn't be fees or downsides to this except that your cash value may not be enough to pay the premium for you anymore, but even then, it's a cheap way to get access to your money.  Good Luck!

[JoJo]

Check the details of your policy, of course, but usually the loan is really smart way to get access to the funds you need - it's not taxable, you don't ever have to pay it back, just when you die the death benefit is lowered by the balance of the loan. There shouldn't be fees or downsides to this except that your cash value may not be enough to pay the premium for you anymore, but even then, it's a cheap way to get access to your money.  Good Luck!

Caveats about loans:
Taking the loan might impact the dividends.  The details of this are likely not in the contract as dividends aren't guaranteed.  Maybe the company can tell you what will happen.
Interest on the loan is taxable when the policy is surrendered or if coverage lapses.  But, if its a short period between the date of the loan and the surrendering of what's left it might not be too much.