Can I cash out a term life insurance policy?
You can't buy term life insurance with cash value, and you cannot cash out a term life insurance policy. However, you have options when term life insurance ends, including converting to permanent life or selling the policy.
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Michael Leotta
Insurance Operations Specialist
Michael earned a degree in Business Management degree with an insurance focus, which led to a successful 25-year career in insurance claims operations and support. He possesses a high-level of business acumen across multiple areas of the insurance industry. Over the course of his career, he served in multiple roles supporting claims operations including: Claims Specialist, Claims Trainer, Claim Au...
Insurance Operations Specialist
UPDATED: Nov 27, 2023
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Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different life insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.
UPDATED: Nov 27, 2023
It’s all about you. We want to help you make the right life insurance coverage choices.
Advertiser Disclosure: We strive to help you make confident life insurance decisions. Comparison shopping should be easy. We are not affiliated with any one life insurance company and cannot guarantee quotes from any single company.
Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different life insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
- A term life insurance policy is not an asset and cannot be cashed out — it can only be sold
- You may have the option to surrender a term life insurance policy for its cash value, which will usually be less than the original amount you paid.
- Term policies do not build cash value because they expire after the set term period.
Most people understand that life insurance comes in two forms — term and permanent. Term life insurance is often the most affordable option, providing coverage for a certain number of years, while permanent life insurance provides lifelong coverage with a cash value component.
But what happens to your policy if you decide you don’t need or want it anymore? Can I cash out a term life insurance policy like other investments?
Unfortunately, the answer is no. Term life insurance has no cash-value component, so you can only sell or surrender your policy.
In this guide, we’ll explain why cashing out a term life insurance policy isn’t an option and discuss whether cash value vs. surrender value in term life insurance is better for you. Learn how to surrender your policy and more alternatives, including converting your policy instead of cashing out.
What is cashing out a life insurance policy?
Cashing out a life insurance policy is the process of receiving a lump sum payment from your insurer in exchange for canceling your policy. This process is sometimes referred to as surrendering life insurance, and it can provide you with quick access to cash if you’re suddenly in need of funds.
Read more: How to Cancel Your Life Insurance Policy
You can’t cash out term life insurance. Term policies are built only to provide death benefits and don’t accrue cash value over time.
On the other hand, permanent life insurance provides lifelong protection and accumulates cash value. For those with permanent policies, there is an option for cashing out your life insurance.
A portion of your premiums goes towards building up a cash value account, and you can access this account at any point in your life through loans or withdrawals. Any remaining funds will still pay a death benefit when you pass away. When you surrender your permanent policy, you can access some or all of the accumulated cash value as a lump sum payment.
However, it’s important to note that if you surrender life insurance before its maturity date (often around age 95-100), you may not receive the full amount due to unpaid premiums and fees associated with early cancellation.
Cashing out a life insurance policy is usually done in emergency situations — especially in term policies — since it can be costly and there are often better alternatives. It is important to understand the differences between term life insurance vs. whole life insurance before making a decision about which one is right for you.
If building up cash value and having access to those funds is important to you, then a permanent life insurance policy may be the better choice. Speak with a financial advisor to ensure that’s the right option for you.
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Do term life insurance policies have cash value?
No, term life insurance does not accrue cash value. If you cancel your term life insurance policy early, no money will be returned to you from the insurer. In fact, if you haven’t paid enough premiums into the policy by the time of cancellation, you may even owe money back to the insurer.
A term life insurance policy is designed to offer financial protection for a specified period of time, usually 10, 15, 20, or 30 years. It is designed for short-term coverage at a fixed rate and pays out a death benefit if the insured dies during the term.
It’s important to remember that once the term expires, so does your coverage and any accumulated cash value within the policy. Decide how much life insurance you need before you buy term life insurance.
The main advantage of term life is that it is typically more affordable and beneficial for those who only need temporary coverage or have budgetary concerns. If you are looking for pure protection at an affordable rate, then a term life insurance policy may be more suitable.
Learn more about guaranteed term life insurance, where rates remain the same throughout the duration of the coverage.
How to Cash Out Term Life Insurance Through a Settlement
Cashing out a life insurance policy through a settlement is an option for those who no longer need or want life insurance coverage.
This process involves selling the death benefits of your existing policy, or the total amount of money that would be paid out upon your passing, to a third-party investor in exchange for a cash lump sum payment.
The investor then assumes ownership and responsibility of the policy and will receive any future payments associated with it. It’s important to note that this option may not be available for all types of term life insurance policies, so it’s best to consult with an experienced financial advisor before making any decisions.
Overall, cashing out a life insurance policy can be a great way to access funds during difficult financial times, but keep in mind that this option can significantly reduce the overall death benefit that would have been available if you had held onto the policy until your passing.
You should also consider other options, such as surrendering the policy to the insurance company, converting it into a paid-up policy, or exchanging it for another type of life insurance. Each option has its own benefits and drawbacks, so it’s important to understand all of your options before making a decision.
Converting Term Life Insurance
If your current insurer provides this option, you can convert your term policy into a permanent life insurance policy to accrue cash value. The process of converting a term life insurance policy is fairly simple and straightforward and usually begins when the current term of coverage ends.
To convert term life insurance, fill out an application for the type of permanent policy you’d like to obtain and pay an additional premium based on your current age and health. New life insurance rates will depend on the coverage amount you’re requesting, as well as any extra features that may be included in the policy.
Once converted, your new policy will offer lifelong protection and potentially build up cash value over time, depending on which type of permanent life insurance you choose. It’s important to remember that additional costs may be associated with converting your policy, so be sure to review all the details before making a decision.
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Case Studies: Can I Cash Out a Term Life Insurance Policy?
Case Study 1: Sarah’s Financial Emergency
Sarah, a 35-year-old working professional, purchased a term life insurance policy when she started her family. Unfortunately, she encountered a financial emergency and needed immediate funds. She considered cashing out her term life insurance policy to access money quickly.
However, Sarah learned that term life insurance policies do not have a cash value component, and cashing out was not an option for her. Instead, she explored other alternatives, such as selling the policy or converting it into a permanent life insurance policy.
Case Study 2: John’s Changing Needs
John, a 50-year-old business owner, had a term life insurance policy that was coming to an end. As his financial situation changed, he evaluated whether he still needed life insurance coverage. John wondered if he could cash out his term life insurance policy.
However, he discovered that term life insurance policies do not accumulate cash value. He explored other options, including converting his term policy into a permanent life insurance policy or purchasing a new policy that aligned with his current needs.
Case Study 3: Emily’s Policy Evaluation
Emily, a 40-year-old professional, reviewed her term life insurance policy and considered cashing it out. She wanted to understand her options before making a decision. Emily learned that term life insurance policies do not offer a cash value component, so cashing out was not possible.
However, she discovered that surrendering the policy or converting it into a permanent life insurance policy were potential alternatives. Emily carefully evaluated the benefits and drawbacks of each option to make an informed choice.
The Final Verdict: Can I cash out a term life insurance policy?
While you can’t cash out term life insurance, you have many different options when it comes to surrendering your policy.
For example, some insurers allow you to convert your term life insurance policy into a permanent one without going through the medical underwriting process again. You can also sell your policy for cash to a third party or buy a new policy when your term life insurance ends.
Overall, cashing out a term life insurance policy is an option for those who no longer need or want their coverage. Cashing out your policy can provide much-needed funds during difficult times, but it will also significantly reduce the overall death benefit that would have been available had you held onto the policy until your passing.
It’s important to understand the benefits and drawbacks of this option before making a decision. Nonetheless, with the right knowledge and guidance, cashing out a term life insurance policy could be a great way to access funds while you’re still alive.
When deciding if term life insurance is right for you, it’s important to consider how long of a period you need coverage and whether or not you can sustain premiums over that period. Term life can provide significant financial protection and peace of mind in times of need, but we recommend discussing your specific needs with an experienced financial advisor who can help guide you in making the best decision for your circumstances.
Frequently Asked Questions
Can I cash out a term life insurance policy?
No, you can’t cash out a term life insurance policy. Term life insurance does not have a cash value component. However, there are other options available, such as converting to permanent life insurance or selling the policy.
Do term life insurance policies have cash value?
No, term life insurance policies do not accrue cash value. They are designed to provide death benefits for a specified period of time and do not offer any cash value or savings component.
How can I cash out a term life insurance policy through a settlement?
Cashing out a term life insurance policy through a settlement involves selling the death benefits of your policy to a third-party investor in exchange for a lump sum payment. This option may not be available for all types of term life insurance policies, so it’s best to consult with a financial advisor before making any decisions.
Can I convert a term life insurance policy?
Yes, if your current insurer provides this option, you can convert your term life insurance policy into a permanent life insurance policy. Converting a policy usually occurs when the current term of coverage ends. Converting allows you to obtain a permanent policy that can accrue cash value over time.
What are the alternatives to cashing out a term life insurance policy?
Instead of cashing out a term life insurance policy, you can consider other options such as surrendering the policy to the insurance company, converting it into a paid-up policy, or buying a new policy when the term ends. Each option has its own benefits and drawbacks, so it’s important to understand all your options before making a decision.
Your life insurance quotes are always free.
Secured with SHA-256 Encryption
Michael Leotta
Insurance Operations Specialist
Michael earned a degree in Business Management degree with an insurance focus, which led to a successful 25-year career in insurance claims operations and support. He possesses a high-level of business acumen across multiple areas of the insurance industry. Over the course of his career, he served in multiple roles supporting claims operations including: Claims Specialist, Claims Trainer, Claim Au...
Insurance Operations Specialist
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.