You cannot cash in most term life insurance policies for money, but you have other options depending on your situation and policy type

Term life insurance is designed to pay a death benefit to your beneficiaries if you die during the coverage period — typically 10, 20, or 30 years. Unlike permanent life insurance (whole life or universal life), term policies build no cash value while you're alive. This is why they cost less: the insurance company is not setting aside money for you to access later. When the term ends, the policy expires with no payout unless you've died.

That said, you do have real options if you need money or want to stop paying premiums. Some policies include riders or features that let you access funds or convert to permanent coverage. And if your health or finances have changed, you may be able to sell the policy or let it lapse without penalty.

Key Takeaways

  • Standard term life policies have no cash value and cannot be cashed in for money while you're alive.
  • Some term policies include an accelerated death benefit rider that lets you access part of the death benefit if you're diagnosed with a terminal illness.
  • You can convert a term policy to permanent life insurance (whole life or universal life) during the conversion window, which typically lasts 10 to 15 years or until age 70.
  • You may be able to sell your policy to a third party through a life settlement if you're over 65 or have a serious health condition, though you'll receive less than the death benefit.
  • If you simply stop paying premiums, the policy lapses and coverage ends — there is no refund of premiums you've already paid.

Why term policies have no cash value

Term life insurance is pure protection: you pay a monthly or annual premium, and the insurance company agrees to pay your beneficiaries a set amount if you die during the term. The premiums are calculated based only on the risk that you'll die during that specific period, your age, health, and the death benefit amount. The company does not set aside a portion of your premium for you to withdraw later.

Permanent life insurance (whole life, universal life, variable universal life) works differently. Part of each premium goes into a cash value account that grows over time and belongs to you. You can borrow against it, withdraw from it, or surrender the policy and receive the cash value. This flexibility costs more — permanent policies typically cost 5 to 15 times what term costs for the same death benefit.

When a term policy expires, you get nothing back. If you've paid premiums for 20 years on a 20-year term and never made a claim, those premiums are gone. This is the trade-off for the lower cost.

Accelerated death benefit riders: accessing money while terminally ill

Some term life policies include an accelerated death benefit rider (also called a living benefit rider). This rider lets you access a portion of your death benefit — typically 25 to 100 percent — if you're diagnosed with a terminal illness, usually defined as a life expectancy of 12 months or less. The money is paid to you, not your beneficiaries, and reduces the death benefit your family receives later.

Not all term policies include this rider, and it's often optional (you pay a small extra premium to add it). If your policy has one, the terms vary: some policies let you access funds for any terminal diagnosis, while others limit it to specific conditions like advanced cancer or end-stage heart disease. Check your policy documents or call your insurance company to see if this rider is included and what the exact terms are.

This is the only way to receive cash from a term policy while alive, and it requires a serious medical diagnosis. It's not a loan — you don't have to repay it, and it's not taxable income.

Converting term to permanent life insurance

Most term life policies include a conversion option that lets you convert to a permanent policy (whole life or universal life) without a medical exam. This is valuable if your health has declined since you bought the term policy, because you can lock in permanent coverage at rates based on your current age, not your current health.

The conversion window is limited. Most policies allow conversion anytime during the term, but some restrict it to the first 10 or 15 years, or until you reach a certain age (often 70). After the window closes, you cannot convert. Check your policy documents for the exact deadline.

When you convert, you stop paying term premiums and start paying permanent premiums, which are significantly higher. You're not cashing in the policy — you're exchanging it for a different product. The permanent policy will have a cash value that grows over time, which you can eventually borrow against or withdraw from. But conversion is a long-term financial commitment, not a way to get quick cash.

Selling your policy through a life settlement

If you no longer need your life insurance and want to recover some of the money you've paid in premiums, you may be able to sell your policy to a third party through a life settlement. A life settlement company purchases your policy, takes over the premium payments, and collects the death benefit when you die.

Life settlements are typically available only if you meet certain criteria: you're usually at least 65 years old, or you have a serious health condition (heart disease, cancer, diabetes, etc.) that significantly reduces your life expectancy. The company will order medical records and possibly require an exam to assess your health and estimate how long you'll live. The longer they expect you to live, the less they'll pay for the policy.

You'll receive a lump sum payment, but it will be less than the death benefit — typically 10 to 50 percent of the face value, depending on your age and health. The sale is taxable income on the amount above what you've paid in premiums. Life settlements are regulated differently in each state, and not all states allow them. Work with a broker who specializes in life settlements to understand the tax implications and find a buyer.

Letting your policy lapse or surrendering it

If you simply stop paying premiums, your term policy will lapse after a grace period (usually 30 to 60 days). Once it lapses, coverage ends immediately and you receive nothing. There is no refund of premiums you've already paid, and your beneficiaries will not receive the death benefit if you die after the policy lapses.

Some policies include a surrender option, which means you can formally end the policy before the term expires. Surrendering a term policy also results in no payout — you're simply ending your coverage early. There's no financial benefit to surrendering versus letting it lapse, but formally surrendering creates a clear record that coverage has ended.

If you're struggling to pay premiums, contact your insurance company before the policy lapses. Some companies offer options like reducing the death benefit (which lowers the premium), extending the term at a higher rate, or converting to a smaller permanent policy. It's worth asking what's available rather than simply letting coverage end.

What happens if you need money now

If you own a term policy and need cash urgently, cashing in the policy itself is not an option. But you have other sources: you could take a personal loan, borrow against a home equity line of credit, or sell other assets. These alternatives may cost less in the long run than surrendering life insurance you may still need.

Before you let a term policy lapse or sell it, think about whether you still need the coverage. If you have dependents who rely on your income, or debts that would burden your family, the death benefit is probably worth keeping. If your circumstances have genuinely changed — your children are grown, your mortgage is paid off, you have substantial savings — then ending the policy makes sense.

Frequently Asked Questions

Can I borrow money against my term life insurance policy?

No. Term policies have no cash value, so there's nothing to borrow against. Only permanent life insurance policies (whole life, universal life) allow loans against the cash value. If you need a loan, you'd have to convert your term policy to permanent first, which takes time and increases your premiums significantly.

What if I paid premiums for 10 years and then stopped?

The premiums you paid are gone. Term insurance is not an investment — you're paying for protection during that term. If you stop paying before the term ends, coverage lapses and you receive no refund. If you die after the policy lapses, your beneficiaries receive nothing.

Can I cash in a term policy if I'm diagnosed with a serious illness?

Only if your policy includes an accelerated death benefit rider and your diagnosis meets the policy's definition (usually terminal illness with less than 12 months to live). Not all term policies include this rider. Check your policy documents or call your insurance company to confirm whether you have it.

Is selling my term policy to a life settlement company a good idea?

It depends on your situation. If you're over 65, no longer need the coverage, and want to recover some of your premiums, a life settlement may make sense. But you'll receive far less than the death benefit, the sale is taxable, and your beneficiaries will receive nothing when you die. Only consider this if you're certain you don't need the life insurance protection anymore.

What's the difference between surrendering a policy and letting it lapse?

Functionally, they're the same — coverage ends and you receive no money. Surrendering is formal; you contact the company and end the policy on purpose. Letting it lapse means you simply stop paying premiums. Surrendering creates a clear record, but there's no financial advantage to either option with a term policy.