You cannot cash out most term life policies, but you have other options
Term life insurance is designed to pay a death benefit if you die during the coverage period — usually 10, 20, or 30 years. It has no cash value while you're alive, which is why the premiums are low. When you stop paying, the coverage ends. There is no pot of money sitting there waiting for you to withdraw.
That said, you're not completely stuck if you need money or no longer want the policy. You can sell it, surrender it for a small payment in some cases, or convert it to permanent coverage that does build cash value. Each option has different consequences for your wallet and your family's protection.
Key Takeaways
- Term life policies have no cash value and cannot be cashed out like savings accounts — the money you paid in premiums is gone once coverage ends or you cancel.
- You can sell your term policy to a third party through a life settlement broker, though you'll typically receive less than the death benefit and more than zero.
- Some insurers allow you to surrender a policy for a small surrender value, usually only a few hundred dollars, though most term policies offer nothing.
- Converting your term policy to permanent life insurance (whole life or universal life) lets you build cash value, but your premiums will jump significantly.
- If you simply stop paying premiums, your coverage ends and you receive nothing — there is no refund period for term policies.
Why term policies have no cash value to withdraw
Term life is pure insurance: you pay a premium, and the company agrees to pay your beneficiaries if you die. The premium is calculated based on your age, health, and the risk the company takes on. Once you pay it, that money covers the cost of insuring you for that month or year. It doesn't accumulate or grow.
Permanent policies like whole life or universal life work differently — part of your premium goes into a cash value account that grows over time and you can borrow against or withdraw from. Term policies don't have that account. The low premium is the trade-off: you get affordable coverage, but nothing to cash out.
If you cancel a term policy, the company keeps the premiums you've paid. There is no refund, no surrender value, and no waiting period to reclaim money. This is why term insurance is cheaper than permanent coverage — you're not funding a savings component.
Selling your policy through a life settlement
A life settlement is a sale of your insurance policy to a third party — usually an investment company or individual investor. You receive a lump sum payment, typically more than the surrender value (if any) but less than the death benefit. The buyer takes over the premium payments and becomes the beneficiary.
Life settlements are most common for policies worth $100,000 or more, and they work best if you're older or have health issues that make the policy more valuable to an investor. A broker can shop your policy to multiple buyers and negotiate on your behalf. The process usually takes 30 to 90 days.
The downside is that you lose all coverage once the sale closes, and your beneficiaries receive nothing when you die — the new owner collects the death benefit. You also may owe taxes on the difference between what you receive and what you paid in premiums. A life settlement makes sense only if you're certain you don't need the coverage anymore.
Surrendering your policy for a small payment
Some term policies include a surrender value — a small amount the insurer will pay if you cancel. This is rare with term life but more common with policies issued in recent years or those with longer terms. The surrender value is usually a few hundred dollars at most, nowhere near what you've paid in premiums.
To learn about your policy has a surrender value, call your insurance company or check your policy document. If one exists, the company will tell you the amount when you request cancellation. You'll need to sign a form releasing the insurer from any future claims.
Surrendering is simpler than a life settlement and faster — usually a few weeks — but you receive far less money and lose coverage immediately. It's an option only if you truly don't need the insurance and want a small return rather than nothing.
Converting to permanent coverage to access cash value
Most term policies include a conversion option that lets you switch to whole life or universal life insurance without a medical exam. This is valuable if your health has declined since you bought the term policy, because you can lock in coverage at your current age without proving you're still healthy.
The catch is that permanent policies cost much more. Your new premium could be two to five times higher than your term premium, depending on your age and the type of permanent policy you choose. However, part of that premium now goes into a cash value account that grows over time. After several years, you can borrow against it or withdraw from it.
Conversion makes sense if you want lifelong coverage and are willing to pay more, or if your health has changed and you can't get a new term policy at a reasonable rate. It doesn't make sense if you're looking for a quick cash payout — it takes years of payments before the cash value becomes substantial.
What happens if you simply stop paying
If you stop paying your premium, your coverage ends on the date payment is due. There is no grace period for term policies (some permanent policies have a 30-day grace period, but term does not). Once coverage lapses, you have no death benefit and no money coming back to you.
If you die after the policy lapses, your beneficiaries receive nothing from the insurance company. The premiums you paid are gone. Some insurers offer a short window — usually 30 days — to reinstate a lapsed policy by paying back premiums plus interest, but this varies by company and policy.
If you're thinking about canceling because the premium is too high, contact your insurer first. Some allow you to reduce the death benefit to lower the premium, which keeps you covered at a cost you can afford.
Comparing your options side by side
| Option | Money You Receive | Coverage After | Timeline | Best For |
|---|---|---|---|---|
| Life settlement | Lump sum (more than surrender value, less than death benefit) | None — buyer becomes beneficiary | 30–90 days | Policies over $100,000; you don't need coverage anymore |
| Surrender for value | Small amount (usually a few hundred dollars) | None | 2–4 weeks | You want a quick end with minimal return |
| Convert to permanent | None upfront; cash value builds over years | Yes — lifelong coverage | Immediate switch; cash value takes years | You want lifelong coverage and can afford higher premiums |
| Stop paying | Nothing | None | Immediate | You've decided you don't need insurance |
Tax consequences of cashing out
If you receive money from a life settlement or surrender, you may owe income tax on the amount above what you paid in premiums. For example, if you paid $5,000 in total premiums and receive $8,000 from a life settlement, you owe tax on the $3,000 gain.
The tax treatment depends on whether the policy was issued before or after 1984 and whether you're the original owner. Policies issued after 1984 are taxed under modified endowment contract (MEC) rules if they fail certain tests. Consult a tax professional before selling or surrendering a policy to understand your liability.
Frequently Asked Questions
Can I borrow money against my term life policy?
No. Term policies have no cash value, so there is nothing to borrow against. Only permanent policies like whole life or universal life allow loans against the cash value. If you need a loan, you would have to convert your term policy to permanent coverage first, wait for cash value to build, and then borrow.
What if I need the money but want to keep some coverage?
You can reduce the death benefit on your term policy to lower the premium, freeing up money each month. You can also sell the policy through a life settlement and buy a smaller term policy with the proceeds, though this requires a new medical exam. A broker can help you explore both options.
Is there a waiting period before I can cash out a term policy?
No. You can request a life settlement or surrender at any time. However, life settlements are more attractive to buyers if you're older or have health issues, so the payout may be very small if you're young and healthy. Surrender values, if they exist, are available immediately upon request.
Do I have to tell my beneficiaries if I sell my policy?
Yes. If you sell your policy through a life settlement, your beneficiaries will no longer receive a death benefit when you die — the new owner will. You should inform them of this change. There is no legal requirement, but it affects their financial security and they deserve to know.
Can I get my premiums back if I cancel?
No, not for term life. The premiums you paid are gone once you cancel or coverage lapses. This is why term insurance is affordable — you're not funding a savings account. If you want money back, your only option is a life settlement, which pays based on the policy's market value, not what you contributed.