Can You Cash Out a Term Life Insurance Policy?

• A standard term life insurance policy does not build cash value and is designed solely to provide financial protection for a specific period of time.
• Policyholders who want to get some value from their coverage may consider alternatives such as adding a return-of-premium rider, converting the policy to permanent insurance, or selling it through a life settlement.
• If a policyholder outlives a term policy the coverage simply ends, and there is no payout unless a return-of-premium feature is included in the contract.
• Converting a term policy to permanent coverage can be beneficial for long-term needs, offering lifelong protection and the potential to build cash value over time.

No, a standard term life insurance policy cannot be cashed out because it does not build cash value over time.

Term life coverage provides protection for a fixed period (usually 10, 20, or 30 years) and only pays a death benefit if the insured person passes away during that term. Once the policy expires or if it is surrendered, it holds no monetary value.

Term life insurance doesn’t build cash value like permanent life policies do. It’s designed purely for temporary financial protection during a crucial phase of life, not for future savings and investment.

Here’s why it can’t be cashed out:

• No savings component: Premiums go entirely toward covering the cost of insurance, with no accumulated cash value component that grows over time.
• Coverage-only model: The policy only pays a death benefit if the insured passes during the term.
• Expires with no residual value: When the term ends, the coverage stops and there’s no savings that you can withdraw from the policy.

Read: Stranger Originated Life Insurance (STOLI)

Although traditional term life insurance doesn’t include a cash value component, there are a few ways to gain financial benefit from these policies:

Term Life Policies with Return-of-Premium (ROP) Feature

A return-of-premium policy refunds the premiums paid if the policyholder outlives the term. While it costs more than standard term coverage, it offers the advantage of recovering the money that you have invested in premiums. You must purchase an ROP policy at the start; existing term policies can’t be converted to add this feature.

Converting a Term Policy to a Cash Value (Permanent) Policy

Many insurers allow policyholders to convert term life insurance to permanent life (such as whole life or universal life policies) without undergoing an additional medical exam. Once converted, policyholders can access the cash value through loans or withdrawals after it has built up over several years.. However, accessing cash value will reduce the death benefit of the policy that is ultimately paid to beneficiaries.

Selling a Term Life Insurance Policy (Life Settlement)

A life settlement involves selling an existing life insurance policy to a third-party buyer for a lump-sum payment. The buyer takes over premium payments and receives the death benefit later. Life settlements are complex and typically make sense only for older policyholders or those with declining health.

Read: Life Insurance For Hiv Patients

When a term life policy ends or is canceled, what happens next depends on how the policy was structured. Here’s what typically takes place:

• No payout for standard term life policies: Once the term ends, the coverage stops, and there’s no cash value or refund. Your beneficiaries would no longer receive a death benefit.
• Return-of-premium exception: If your policy includes this feature as an add-on rider, you get back the premiums that you’ve paid.
• New policy considerations: If you still need protection at the end of the term, you’ll need to apply for new coverage, which will likely come at a higher cost due to your age or health changes.

Read: Life Insurance Companies for Young Adults

Converting a term life policy to permanent coverage can be a smart move if you want lifelong protection and the ability to build cash value.

It’s especially worthwhile when your financial needs have grown or you want to avoid reapplying for new coverage through a medical exam.

When Conversion Makes Sense

• You still need life insurance coverage beyond your current term.
• Your health has changed, and you want to avoid another medical exam.
• You’re interested in building long-term cash value or estate planning benefits.
• You want lifelong protection to support dependents or business obligations.

When Conversion May Not Be Ideal

• You no longer need coverage or your financial dependents no longer rely on your income.
• The higher premiums of permanent insurance don’t fit your current budget.
• You prefer keeping investments and insurance separate for flexibility.
• Your financial goals are short-term, and lifetime coverage isn’t necessary.

Read: Best Term Life Insurance Companies

Some types of life insurance include a built-in savings component that grows over time.

• Whole life insurance: It builds guaranteed cash value steadily throughout the life of the policy.
• Universal life insurance: It accumulates cash value while allowing flexible premium payments and coverage amounts.
• Variable life insurance: It invests part of the premium in market-linked funds, which can increase or decrease the cash value.
• Indexed universal life insurance: It ties cash value growth to a market index, offering a balance between risk and stability.