Term life insurance does not build cash value, so you cannot cash it out the way you can with permanent life insurance

A term life policy is pure insurance — you pay a premium for a set period (10, 20, or 30 years), and the insurance company pays your beneficiaries if you die during that term. It does not accumulate money you own. When the term ends, the policy ends. There is no pot of money waiting for you to withdraw, and no surrender value to collect if you stop paying.

This is the core difference between term and permanent insurance like whole life or universal life. Those permanent policies do build cash value over time — money that belongs to you and that you can borrow against or withdraw. Term policies do not. The trade-off is that term insurance costs much less per month because the insurance company is not setting aside money for you.

If you own a term policy and need cash, you cannot turn the policy itself into money. But there are other options depending on your situation and the policy's terms.

Key Takeaways

  • Term life policies have no cash value and cannot be cashed out, even if you have paid premiums for years.
  • You can stop paying premiums at any time, but the policy ends and your beneficiaries lose coverage — you do not receive any refund.
  • Some term policies include a conversion option that lets you switch to permanent insurance without a medical exam, though the new policy will cost more.
  • If you need money, selling the policy to a third party through a life settlement or viatical settlement is possible but uncommon for term policies and involves complex rules.
  • The best time to explore your options is before the term ends, because options narrow once the policy expires.

What happens if you stop paying premiums on a term policy

If you stop paying your premium, the insurance company will send you notices and give you a grace period — usually 30 days — to pay. If you do not pay within that window, the policy lapses. Your coverage ends when ready, and your beneficiaries are no longer protected.

You do not receive any money back. Term insurance does not refund premiums you have already paid, even if you have been paying for 15 years of a 20-year term. The premiums are gone. This is why term insurance is affordable — you are not funding a cash reserve.

If you are having trouble paying the premium, contact your insurance company before the grace period ends. Some companies offer options like reducing the death benefit temporarily to lower the monthly cost, or they may let you convert the policy (see below) before it lapses.

Converting a term policy to permanent insurance

Many term policies include a conversion option — a feature that lets you switch to a permanent policy (usually whole life or universal life) without taking a medical exam. This is valuable because it means you can get permanent coverage even if your health has changed since you bought the term policy.

The catch is that permanent insurance costs significantly more. Your new monthly premium will be higher than your current term premium, sometimes much higher. The exact cost depends on your age, health, and the type of permanent policy you choose. You will need to review a new quote from your insurance company to know the real number.

Conversion is not the same as cashing out. You are not receiving money — you are buying a different, more expensive policy. But if you want to keep life insurance in place beyond your term's end date, conversion may be your best option because you skip the medical underwriting process.

Check your policy documents or call your insurance company to see if conversion is available and what the important date is. Most policies let you convert anytime during the term, but some have a window (for example, the last five years of the term). Once the term expires, conversion is no longer an option.

Selling your term policy through a life settlement

A life settlement is a sale of 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 becomes the beneficiary. When you die, they collect the death benefit.

Life settlements are rare for term policies because they only make financial sense when a policy has significant cash value or a long remaining term with low premiums. Most term policies are not attractive to buyers. A 20-year term with 5 years left, for example, is unlikely to find a buyer at any price.

If you do find a buyer, the process is complex. You will need a broker to find the buyer, you will undergo medical underwriting again (the buyer wants to know your health), and you will receive less than the death benefit — often much less. The IRS also has rules about how life settlement proceeds are taxed, and the rules vary depending on whether you are terminally ill.

A viatical settlement is similar but specifically for people with a terminal illness or life expectancy under two years. The buyer pays more because the death benefit will be paid out sooner. These are even less common for term policies.

Letting your term policy expire naturally

If you reach the end of your term and do not convert or renew, the policy straightforward ends. You have no coverage, and there is no money to collect. This is the most common outcome for term policies.

Before your term expires, you will receive notices from your insurance company asking whether you want to renew or convert. Read these carefully. Renewal means buying a new term policy, usually at a higher premium because you are older. Conversion means switching to permanent insurance at a locked-in rate (no medical exam required).

If you do nothing, the policy lapses on the expiration date and you lose coverage. There is no grace period at the end of the term — it straightforward ends.

Why term policies do not have cash value

Term insurance is structured to be affordable by design. The insurance company collects premiums only for the years you are covered, and pays out claims only if you die during that term. They do not set aside a reserve of your money because the policy has an end date.

Permanent insurance works differently. You pay higher premiums, and part of that premium goes into a cash value account that grows over time. That account is yours — you can borrow against it, withdraw from it, or let it grow. When the policy ends (usually at age 100 or 120), you can surrender it and take the cash value.

If you want a policy with cash value that you can access, you would need to buy permanent insurance from the start, or convert your term policy to permanent insurance before the term ends. But both options cost more than term insurance.

What to do if you need cash and own a term policy

If you need money and you own a term policy, the policy itself cannot provide it. But you have other options: you can take out a personal loan, borrow against a home or other asset, or sell something you own. These are separate from the insurance policy.

If you are considering letting the policy lapse to free up the monthly premium, think carefully. The premium is usually small compared to the protection it provides. If you still need life insurance — to cover a mortgage, support dependents, or replace income — letting it lapse leaves them unprotected. A better move might be to reduce the death benefit temporarily to lower the premium, or to explore conversion if you want permanent coverage.

Talk to your insurance company about your options before you make a decision. They can show you what conversion would cost, whether you can reduce the benefit, and what happens if you let the policy end.

Frequently Asked Questions

Can I get my premiums back if I cancel my term policy?

No. Term insurance does not refund premiums you have already paid. Once the premium is paid, it is gone. You are paying for the insurance protection during that period, not funding an account you can access later.

What if I convert my term policy to whole life — can I cash that out later?

Yes, but only after the new permanent policy has been in force long enough to build cash value, which usually takes several years. Whole life policies do accumulate cash value that you can borrow against or withdraw, but the amount starts small and grows slowly. You would need to review the specific policy to know when and how much you can access.

Is there a time limit on converting my term policy?

Yes. Most policies let you convert anytime during the term, but some have a window — for example, only in the last five years. Check your policy documents or call your insurance company to find out your important date. Once the term expires, conversion is no longer available.

What if I am terminally ill — can I sell my term policy?

Possibly, through a viatical settlement. Because you have a short life expectancy, a buyer might pay more than they would for a standard life settlement. But the process is complex, involves medical underwriting, and you will receive less than the death benefit. A broker who specializes in viatical settlements can tell you whether your policy is worth selling.

Can I borrow money against my term policy?

No. Term policies have no cash value, so there is nothing to borrow against. Only permanent insurance policies like whole life or universal life allow loans against the cash value. If you need a loan, you would need to explore other options like a personal loan or home equity line of credit.