Can You Cash Out a Term Life Insurance Policy?

When most people purchase life insurance, they choose between term and permanent policies. Term life insurance is popular for its affordability and simplicity. But what happens when you no longer need the coverage—or simply want to get some money back from the policy?

Many policyholders wonder: Can you cash out a term life insurance policy? The answer is more complex than a simple yes or no. This guide explores whether you can sell or cash out a term policy, when it might make sense, and what options exist to help you unlock its potential value.

Introduction: Understanding Term Life Insurance

Term life insurance provides coverage for a specific period—usually 10, 20, or 30 years. If you pass away during that term, your beneficiaries receive a death benefit. If the term ends and you’re still living, the policy typically expires with no cash return.

Because it lacks an investment component, it’s cheaper than whole or universal life. But that also leads many to ask: Can you cash out a term life insurance policy?

Let’s find out.

Can You Cash Out a Term Life Insurance Policy?

The short answer: No, you cannot directly cash out a term life insurance policy.

Unlike permanent life insurance, term policies do not accumulate cash value over time. That means when the term ends or if you cancel the policy, there’s no refund or payout—unless you’ve purchased a return of premium rider, which is uncommon and more expensive.

However, there are indirect ways to potentially extract value, such as:

• Selling the policy through a life settlement
• Converting the term policy into a permanent policy, then selling it
• Utilizing a conversion rider

We’ll explore each of these strategies below.

Why Term Life Insurance Has No Cash Value

Understanding why term policies lack cash value is key to understanding your options.

Key Differences Between Term and Permanent Life Insurance

So, can you cash out a term life insurance policy the way you would a whole life policy? Unfortunately, no. But if it’s convertible, it could unlock additional options.

Can I Sell My Term Life Insurance Policy?

If your policy is convertible, the answer is: Yes, you may be able to sell your term life insurance policy.

What Is a Convertible Term Policy?

A convertible policy allows you to convert your term coverage into a permanent policy (such as whole or universal life) without a medical exam. This conversion can make the policy eligible for a Life settlement, where you sell the policy for cash to a third party.

🔑 Key takeaway: Only convertible term policies can potentially be sold.

When Selling a Term Life Policy Is Possible

Several conditions must be met to successfully sell a term life insurance policy:

✅ Policyholder is age 65+

Buyers prefer seniors or people with health issues that affect life expectancy.

✅ Policy face value is $100,000 or more

Smaller policies are generally not attractive to buyers.

✅ Convertible policy still within conversion period

This is usually within the first 5–10 years of the policy.

✅ Health decline since policy issuance

A serious health diagnosis can increase the value of a life settlement.

Steps to Sell Term Life Insurance Policy

Here’s how to go about it:

Step 1: Check if the policy is convertible

Look at your policy documents or contact your insurer.

Step 2: Review conversion deadline

Make sure you’re still eligible to convert it to permanent insurance.

Step 3: Get a policy valuation

Work with a licensed life settlement broker or provider for an estimate.

Step 4: Convert and apply for a life settlement

You may first need to convert the term policy, then apply for a settlement.

Step 5: Receive a lump sum payout

Once approved, you’ll be paid cash in exchange for transferring ownership.

Life Settlement vs. Surrender for Term Policies

💡 Pro Tip: Even if your term policy seems worthless, don’t cancel it until you explore whether you can sell it.

Tax Considerations When Selling a Term Policy

Selling your policy may have Tax Implications:

• Profit is taxable: Any amount you receive above the total premiums paid may be taxed as ordinary income or capital gains.
• No tax on death benefit: The death benefit your beneficiaries receive (if you don’t sell the policy) is tax-free.

Always consult with a tax professional before proceeding with a sale.

Converting Term to Permanent Life Insurance

A policy conversion is often your only path to unlocking value from a term policy.

Benefits of Converting:

• No medical underwriting
• Makes the policy eligible for a sale
• Retains coverage for life

Drawbacks:

• Higher premiums
• Not available on all policies
• Limited time window

Once converted, your permanent policy will accumulate cash value and be eligible for a life or viatical settlement.

Pros and Cons of Selling a Term Life Policy

✅ Pros:

• Cash payout for an otherwise expiring asset
• Avoids lapse with no return
• Funds can be used for medical bills, retirement, or debt

❌ Cons:

• Loss of death benefit
• Potential tax liability
• Requires conversion first
• May not qualify if not convertible or too small

Alternatives to Selling Term Insurance

If you can’t sell your policy, consider these options:

1. Renew the policy

Some term policies are renewable annually—though premiums increase sharply.

2. Convert to permanent policy

If time permits, this opens the door to both continued coverage and cash value growth.

3. Replace with a smaller policy

Consider buying a more affordable term policy if you still need coverage.

4. Use policy as collateral for a loan

Some financial institutions allow policies as security for loans—even term policies with strong death benefits.

How Summit Life Settlements Can Help

If you’re holding a term life insurance policy you no longer need, no longer want to pay for, or that no longer fits your financial goals, you might be wondering what to do next—especially since term policies typically don’t build any cash value. While surrendering or lapsing the policy might seem like your only option, you may be leaving significant value on the table.

At Summit Life Settlements, we specialize in helping policyholders and their advisors uncover hidden value in life insurance policies—including convertible term policies that can be transitioned into permanent coverage and sold for a Life settlement.

We are a licensed life settlement brokerage committed to advocacy, transparency, and maximizing policy value for our clients. Here’s how we help:

✅ Expert Policy Evaluation and Strategy

We start by reviewing your policy’s details to determine whether it qualifies for a life settlement. Even if your term policy has no cash value, we assess whether it is convertible—a key feature that allows it to be transitioned into a permanent policy, which may then be sold to investors.

If you’re eligible, we’ll walk you through the conversion process and evaluate whether a full cash settlement, a retained death benefit, or a hybrid structure best suits your financial goals.

✅ Access to Our Summit Life Marketplace

What sets Summit apart is our proprietary Summit Life Marketplace—an innovative, auction-style platform that connects your policy to a nationwide network of highly vetted, licensed institutional buyers.

Instead of accepting the first offer, your policy is competitively bid on by multiple buyers, ensuring you receive the highest possible value for your life insurance asset. This competitive environment brings greater transparency and often results in payouts far exceeding a policy’s cash surrender value (or nothing at all, in the case of term policies that would otherwise lapse).

✅ No Upfront Fees or Hidden Costs

Working with Summit means you’ll never pay anything out of pocket. Our services are 100% success-based, and our compensation is fully disclosed. That means if you choose not to move forward—or if your policy doesn’t qualify—you owe us nothing.

✅ Tailored Support from Start to Finish

The life settlement process can seem complex, but we make it simple. Our experienced team will:

• Handle all paperwork and policy review

• Gather any necessary medical and insurance records

• Coordinate directly with the insurance carrier and buyers

• Keep you informed at every stage

• Advocate for your best interests—not the buyer’s

Whether you’re a policyholder exploring your options, or a financial or insurance professional assisting a client, Summit ensures a smooth and transparent process from start to finish.

✅ Empowering Professionals with Resources and Commission Sharing

We also work closely with insurance agents, financial advisors, estate planners, and other professionals—offering commission-sharing opportunities and educational tools to help them better serve their clients. Tools like our Life Settlement Evaluator Report help advisors clearly show the financial impact of selling a policy versus retaining it or letting it lapse.

💼 Your Partner in Maximizing Policy Value

At Summit Life Settlements, our mission is simple: to help clients make informed decisions and receive the maximum possible value from policies they no longer need. Through a combination of deep industry knowledge, advanced technology, and a client-first mindset, we’ve become a trusted partner for policyholders and professionals nationwide.

Don’t let a term policy go to waste. Contact Summit Life Settlements today to find out if your policy qualifies—and explore the full range of options available through our exclusive Marketplace platform.

Final Thoughts

So, can you cash out a term life insurance policy? While a traditional cash-out isn’t possible, selling a convertible term policy may unlock hidden value—especially for seniors and those with declining health.

If your policy qualifies, selling it can provide thousands—or even hundreds of thousands—of dollars you can use during your lifetime.

FAQs

1: Can you cash out a term life insurance policy if you stop paying?

No. If you stop paying premiums, the policy simply expires with no payout.

2: Can I sell my term life insurance policy if I’m under 65?

Possibly, but it’s harder. Life settlement providers typically prefer older or impaired policyholders.

3: How much can I get if I sell my term policy?

A life settlement typically pays 10%–25% of the policy’s face value, depending on health, age, and policy terms.

4: What if my policy isn’t convertible?

If the policy isn’t convertible or the window has closed, you likely can’t sell or cash it out. You can let it lapse or shop for new coverage.

5: Is it worth converting just to sell it?

That depends. If you qualify and the sale nets you a higher return than letting the policy lapse, it may be a wise financial move.

6. Why doesn’t term life insurance have cash value?

Term life insurance is designed to offer affordable coverage for a specific period of time. Since premiums are only used to cover the cost of insurance, there’s no portion set aside to accumulate value—unlike whole or universal life policies.

7. Are there any exceptions where I can get money from a term policy?

While you can’t directly cash out a term life policy, you may still have options:

• Convert it to a permanent policy and then pursue a life settlement

• Check for any included riders (such as terminal illness or accelerated death benefit riders) that may allow early access to a portion of the death benefit

8. Can I convert my term policy to a permanent one and then sell it?

Yes, many term policies offer a conversion option, which allows you to switch to a permanent policy without new medical underwriting. Once converted, the permanent policy may qualify for a life settlement, allowing you to sell it for a lump sum payout.

9. What happens if I just stop paying my term life premiums?

If you stop paying premiums, the policy will lapse and coverage will end—without any refund or payout. Since there’s no cash value, there’s nothing to receive after cancellation.

10. What’s the difference between cashing out and a life settlement?

Cashing out usually refers to surrendering a policy with built-up cash value. Life settlements, on the other hand, involve selling your policy to a third party. While you can’t cash out a term policy directly, if it’s convertible, you may still qualify for a settlement.

11. Can I get any value out of a term policy that’s no longer needed?

Yes—if the policy is still active and convertible, you may be able to convert and sell it through a life settlement. This can be especially valuable if you’re over age 65 or have experienced health changes.