Can You Cash Out A Term Life Policy?
Term life insurance policies don’t build cash value, so there is no cash-out option. Yes, you can surrenderSurrender
To surrender an insurance policy is to cancel it, formally speaking. If there's a cash surrender value, the insurance company will pay it to the policy owner. a term life policy, but there will not be a cash surrender valueCash Surrender Value
The amount of money refunded to the policyowner upon cancelling (aka "surrendering") the policy. The surrender value is generally equal to the current cash value or very close to it..
With a term life policy, you’re paying purely for the death benefit protection and nothing else. The policy typically lasts for 10-40 years. If you die while the policy is active, the insurer will pay out the death benefit. If you outlive a term policy, it ends; you’re no longer insured, and you don’t get your money back (unless you had a return-of-premium rider).
You May Be Able To Sell Your Term Life Insurance Policy
It may be possible to sell your term life insurance policy to an investor. Known as a “life settlement“, this is the process where a third-party investor pays you a lump sum fee in exchange for taking over your policy. Keep in mind that not everyone can sell their policy. Investors only buy life policies under certain circumstances.
After the transaction is complete, they will become the policy owner and beneficiary. You would no longer have access to policy, rights, or control over any aspect of the policy.
In general, a life settlement is ideal for seniors over 65 with a policy of $100,000 or more who can no longer afford their premiums. Rather than cancelling the policy (which leaves you with $0), a life settlement company buys it from you (oftentimes resulting in a check of over $10,000 or more).
JG Wentworth has a helpful life settlement calculator that provides a general estimate of how much your policy may be worth if you were to sell it. If you’re interested in selling your life insurance:
- Find a reputable life settlement broker.
- Give them all the details about your policy, including type, death benefit, current cash value (if any), and year of policy issue.
- Provide personal details such as age, gender, and your health history about your health (this is a major factor).
- Review the investor’s cash offer (if they make one). If you accept, you’ll receive the cash and complete the paperwork to transfer the policy to them.
What Life Insurance Can You Cash Out?
The types of life insurance that can be cashed out include:
- Whole life insurance: A permanent policy that includes a death benefit and a cash value component. When you surrender a whole life policy, the insurer will disperse the cash surrender value, which is generally equivalent to the current cash value minus any policy loans.
- Universal life insurance: Permanent coverage that, like whole life, has a death benefit and cash value. Universal life policies usually offer payment flexibility, and the cash value grows based on different market indices, enabling greater accumulation than whole life policies. When you surrender a universal life policy, the net surrender value is still the current cash value less any policy loans.
Alternatives To Cancelling Or Selling Your Term Life Policy
Given that you cannot cash out a term life policy, here are some options to consider if you don’t have interest (or perhaps don’t qualify) in selling it to a life settlement company:
- Reduce the coverage: If your budget is what’s causing you to contemplate cashing out your policy, ask your insurer whether or not you can reduce the death benefit. That would reduce the premium. Not all insurers allow this, and the policy varies, but many do.
- Covert: Many term life policies are convertible, allowing you to switch from term to whole life without underwriting. This will not be helpful if your budget is forcing you to reduce expenses, since converting to whole life insurance will cause a significant increase in premiums. However, if your life circumstances changed and you now need permanent life insurance, this would be the ideal solution. Once converted to permanent coverage, cash value will begin to accumulate, which you could withdraw at any time.
- Cancel and buy a new policy: You could cancel your term life policy and buy a one (term or some other type) from the same or different company. It’s less ideal than other options; this may be your only recourse depending on your circumstances.
- Nationally licensed life insurance agent with over 16 years of experience.
- Personal annual production that puts him in the top .001% out of all life insurance agents in the nation.
Anthony Martin is a nationally licensed insurance expert with over 16 years of experience and has personally served over 10,000 clients with their life insurance needs. He frequently authors entrepreneurial and life insurance content for Forbes, Inc.com, Newsweek, Kiplinger, and Entreprenuer.com. Anthony has been consulted as an expert life insurance source for dozens of high-profile websites such as Forbes, Bankrate, Reuters, Fox Business, CNBC, Investopedia, Insurance.com, Yahoo Finance, and many more.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
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life settlement. https://www.finra.org/investors/insights/what-you-should-know-about-life-settlements
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JG Wentworth. https://www.jgwentworth.com/resources/mp-life-settlement-for-retirement
