Term life insurance does not build cash value, so you cannot cash it out the way you might with permanent life insurance
A term life insurance policy is designed to pay a death benefit if you die during a set period — typically 10, 20, or 30 years. Unlike permanent policies such as whole life or universal life, term policies do not accumulate money you can withdraw or borrow against. When the term ends, the policy ends. If you stop paying premiums before the term is up, the coverage straightforward stops, and you receive nothing back.
This is the core trade-off of term insurance: the premiums are much lower than permanent insurance because the insurance company is not setting aside cash value for you. You are paying only for the death benefit protection during those years.
Key Takeaways
- Term life policies have no cash value component, so there is no money to withdraw or cash out at any point during the policy.
- If you stop paying premiums on a term policy, your coverage ends and you receive no refund of the premiums you paid.
- Some term policies offer a conversion option that lets you switch to a permanent policy without a medical exam, though the permanent policy will cost more.
- If you no longer need the coverage, you can straightforward let the policy lapse rather than continue paying premiums you do not need.
- Permanent life insurance policies (whole life, universal life) do build cash value that you can borrow against or withdraw, but they cost significantly more than term.
What happens to your premiums when a term policy ends
When you pay premiums on a term life policy, that money goes toward the cost of your death benefit protection and the insurance company's administrative costs. None of it is set aside as a savings account or investment for you. This is why term insurance is affordable — you are not funding a cash reserve.
Once the term expires (for example, at the end of a 20-year term), the policy ends. You have no balance to collect, no surrender value, and no payout. The premiums you paid are gone. If you want coverage after that point, you would need to purchase a new policy, and your premiums would be higher because you are older.
Surrendering a term policy early
If you decide you no longer need the coverage before the term ends, you can stop paying premiums and let the policy lapse. This ends your coverage when ready, but it also means you receive nothing in return — there is no cash surrender value because the policy never built one.
Stopping payment is different from formally surrendering the policy to the insurance company. With most term policies, straightforward not paying the next premium is enough to let it lapse. Some insurers may ask you to confirm you want to cancel, but there is no financial penalty for doing so, and you will not receive any money back.
Converting a term policy to permanent insurance
Many term life policies include a conversion option that allows you to switch to a permanent policy (usually whole life or universal life) without taking a medical exam. This is one of the few ways to get cash value from a term policy — by converting it into a different type of policy that does build cash value.
The conversion must happen while the term is still active, and you must meet any age or other requirements set by your policy. When you convert, your new premiums will be much higher than your term premiums were, because permanent policies cost more. However, you will not have to prove you are still in good health, which can be valuable if your health has changed since you bought the term policy.
Conversion is not cashing out — it is switching to a different product. You would be starting a new policy with new, higher premiums, but one that does build cash value over time.
Selling your term policy to a third party
In some cases, you may be able to sell your term life policy to a third party through what is called a life settlement or viatical settlement. A company or investor purchases your policy, takes over the premium payments, and receives the death benefit when you pass away.
Life settlements are typically available only if you are over a certain age (often 65 or older) or have a serious health condition. The amount you receive is usually less than the death benefit but more than the surrender value (which is zero for term policies). However, life settlements are complex transactions with tax implications, and they are not widely available for term policies — they are more common with permanent policies that have cash value.
If you are considering this route, speak with a tax professional or financial advisor first, because the money you receive may be taxable.
Comparing term and permanent life insurance
| Feature | Term Life Insurance | Permanent Life Insurance (Whole Life, Universal Life) |
|---|---|---|
| Cash value | None | Yes, grows over time |
| Can you withdraw money | No | Yes, after cash value builds |
| Can you borrow against it | No | Yes |
| Coverage period | Fixed term (10, 20, 30 years) | Lifetime, if premiums are paid |
| Monthly premium cost | Lower | Much higher |
| Surrender value if you cancel | $0 | Yes, equal to cash value minus fees |
What to do if you no longer need your term policy
If your circumstances have changed and you no longer need life insurance coverage, you have a few options. The simplest is to stop paying premiums and let the policy lapse. You will not receive any money, but you will stop paying for coverage you do not need.
Before you cancel, consider whether you might need coverage later. If you do, converting to a permanent policy while you are still insurable (without a medical exam) may be worth the higher cost. If you are certain you will never need coverage again, letting the policy lapse is the most straightforward choice.
If you have a large term policy and are in poor health, a life settlement company might offer you cash for it, though this is rare and requires professional guidance.
Frequently Asked Questions
Can I get my money back if I cancel my term life policy?
No. Term life policies do not build cash value, so there is nothing to refund. When you stop paying premiums, your coverage ends and you receive no payout. This is why term insurance is affordable — you are paying only for protection, not for a savings component.
What is the difference between cashing out and converting?
Cashing out means receiving money from the insurance company. Term policies have no cash value, so you cannot cash out. Converting means switching your term policy to a permanent policy that does build cash value, but this requires paying much higher premiums going forward. You are not receiving money; you are buying a different product.
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 life insurance policies (whole life, universal life) allow you to borrow against the cash value that builds up over time.
What happens if I stop paying premiums on my term policy?
Your coverage ends when ready, and you receive no refund. The policy straightforward lapses. If you want coverage again later, you would need to purchase a new policy at a higher premium because you are older.
Is there any way to get money out of a term life policy?
The only realistic option is a life settlement, where you sell your policy to a third party for less than the death benefit. These are rare for term policies and typically available only if you are over 65 or have a serious health condition. Speak with a tax professional before pursuing this, as the proceeds may be taxable.