You cannot cash in most term life insurance policies for money, but you have other options
Term life insurance is designed to pay your beneficiaries a death benefit if you die during the coverage period — typically 10, 20, or 30 years. Unlike permanent life insurance (whole life or universal life), term policies have no cash value. This means there is no pot of money inside the policy that belongs to you and that you can withdraw or borrow against while you are alive.
If you no longer need the coverage or can no longer afford the premiums, you have choices, but cashing in the policy itself is not one of them. The money straightforward does not exist to cash in.
Key Takeaways
- Term life insurance policies build no cash value, so there is nothing to cash in or surrender for money.
- You can stop paying premiums at any time, though the coverage ends and you lose protection.
- Some term policies include a conversion option that lets you switch to permanent insurance without a medical exam, but this costs more per month.
- If you have a terminal diagnosis, some insurers offer accelerated death benefits that pay part of the death benefit while you are still alive.
- Selling your policy to a third party through a life settlement is possible but rare for term policies and usually only works if you are older or seriously ill.
Why term policies have no cash value to withdraw
Term life insurance is pure protection: you pay a monthly or annual premium, and in exchange, your beneficiaries receive the death benefit if you die during the term. The premiums are calculated to cover the insurer's cost of that risk, plus their operating costs and profit. There is no investment component, no savings account, no accumulating balance.
Permanent life insurance (whole life, universal life, variable universal life) works differently. Part of your premium goes toward the death benefit, and part goes into a cash value account that grows over time. That cash value is yours — you can borrow against it, withdraw from it, or surrender the policy and receive it. Term insurance has no such account.
This is why term insurance is cheaper. You are paying only for the death benefit, not for a savings feature you may never use.
What happens if you stop paying premiums
If you decide you no longer want or need the coverage, you can straightforward stop paying the premiums. Your policy will lapse, and you will no longer be insured. There is no penalty for doing this, and the insurer will not send you money.
Some insurers offer a grace period — usually 30 days — during which you can pay a missed premium without losing coverage. After the grace period ends, the policy terminates. You should contact your insurer to confirm their specific grace period and what happens to any premiums you have already paid.
If you are thinking about dropping coverage, review whether you still need life insurance first. If you have dependents who rely on your income, or debts that would burden your family, letting the policy lapse may leave them unprotected.
Converting your term policy to permanent insurance
Many term life policies include a conversion option — a feature that lets you switch to a permanent policy (usually whole life or universal life) without undergoing a medical exam. This is valuable if your health has declined since you bought the term policy, because you would not may have access to for new coverage at standard rates.
The catch is that permanent insurance is significantly more expensive than term insurance. Your monthly premium will jump, sometimes by several times the amount you were paying. You will also now have a cash value component, which means part of your premium builds equity in the policy.
Conversion is available only during a specific window — usually while the term policy is still active or within a short period after it expires. Check your policy documents for the exact important date and terms. If you think you might want to convert, do not wait until the last day of your term; contact your insurer to discuss the options and costs.
Accelerated death benefits for terminal illness
Some term life insurance policies include an accelerated death benefit rider — an optional add-on that lets you receive part of the death benefit while you are still alive if you have a terminal illness or a very short life expectancy (often defined as 12 months or less, though this varies by policy).
This is not the same as cashing in the policy. You are receiving an advance on the death benefit that your beneficiaries would otherwise receive after you die. The amount you receive is subtracted from what they get. There may also be fees or interest involved, depending on the policy terms.
Not all term policies include this rider, and it is not automatic — you have to request it and meet the insurer's medical criteria. If you have a terminal diagnosis and think this might help, contact your insurer to ask whether the rider is part of your policy and what the process is to request payment.
Selling your policy through a life settlement
A life settlement is a transaction in which you sell your life insurance policy to a third party (usually an investment company) for a lump sum of cash. The buyer takes over the premium payments and receives the death benefit when you die.
Life settlements are uncommon for term policies because they make financial sense only in specific situations. The buyer needs to believe they will receive the death benefit within a reasonable timeframe — which means you would typically need to be older (often 65 or older) or have a serious health condition. A healthy person with 20 years left on a 30-year term policy is not an attractive investment.
If you do pursue a life settlement, the cash you receive is usually less than the death benefit but more than the surrender value (which is zero for term policies). You will owe income tax on the difference between what you receive and what you paid in premiums. You should consult a tax professional and a financial advisor before entering into a life settlement agreement.
Checking your policy documents for options
The best first step is to review your actual policy paperwork. Look for sections titled "Riders," "Options," "Conversion," or "Surrender." Your policy statement should list any optional features you have, such as conversion rights or accelerated death benefits.
If you cannot find your policy documents, contact your insurance company directly. You can usually find the phone number on any premium statements you receive, or search for the company's customer service line online. Have your policy number ready when you call.
Be clear about what you are asking: "I want to know what options I have if I no longer want this coverage" or "Does my policy include a conversion option?" This will help the representative give you accurate information about your specific policy.
Frequently Asked Questions
Can I get my premiums back if I cancel my term policy?
No. Term life insurance premiums are not refundable. Once you have paid them, that money is gone. If you stop paying premiums, your coverage ends, but you do not receive a refund of what you have already paid.
What if I bought a term policy and my health got worse — can I still convert it?
Yes. The conversion option is one of the main reasons it exists. You can convert to permanent insurance without a medical exam, even if you would not may have access to for a new policy. You must convert within the window specified in your policy, which is usually while the term is active or shortly after it ends.
Is there any way to get money out of a term life policy while I am alive?
Not from the policy itself, because there is no cash value. Your only options are conversion (switching to permanent insurance, which does build cash value) or a life settlement (selling the policy to a buyer), which works only in limited situations. An accelerated death benefit can provide cash if you have a terminal illness, but this is an advance on the death benefit, not a separate payout.
What happens to my term policy if I move to a different state?
Your policy remains valid. Life insurance is regulated at the state level, but policies are portable — you can move and keep the same coverage. Notify your insurer of your address change so they can update their records and send statements to the correct location.
Can I borrow money against my term life policy?
No. Term policies have no cash value, so there is nothing to borrow against. If you need cash, you would need to explore other options like a personal loan, home equity line of credit, or converting your term policy to permanent insurance (which does allow loans against the cash value).