Can You Cash Out on Life Insurance? Whole Life Cash Value Explained
What Does Face Amount Mean in Life Insurance? Face Amount vs Cash Value
November 13, 2026
Can you cash out on life insurance? Yes, if you own a permanent policy, such as whole life, with built-up cash value. You can surrender the policy for its cash surrender value, borrow against it, take a partial withdrawal or, in some cases, sell it. Term life policies usually have no cash value to cash out.
Many families start asking this question when money is tight, when a policy no longer fits their plans or when premiums become hard to keep up. Cashing out can help, but each option changes the coverage your loved ones would receive and can carry fees or taxes. This guide explains how each route works in plain English so you can have an informed conversation with your insurer, a licensed agent or a tax professional.
Which Life Insurance Policies Can You Cash Out?
Only policies that build cash value can be cashed out. Whole life insurance is the most common example. Part of each premium goes into a cash value account that grows over time according to the policy’s terms. Universal life and similar permanent policies can also build cash value, although growth depends on the policy design.
Term life insurance works differently. It covers you for a set period, such as 10, 20 or 30 years, and generally has no cash value. If you stop paying, coverage ends without a payout. Some term policies offer a return-of-premium feature, but that is a specific contract feature, not a standard cash value.
Final expense insurance is usually a small whole life policy, so it can build some cash value, but the amount is often modest, especially in the early years. If you are unsure what type of policy you have, the whole life insurance overview explains how permanent coverage works.
How Much Cash Value Does a Whole Life Policy Have?
Cash value builds slowly at first and faster later. In the early years, a larger share of premiums typically goes toward the cost of insurance and policy expenses, so the cash value may be small. Your annual policy statement or a quick call to the insurer will show two important numbers:
- Cash value: the amount that has accumulated inside the policy.
- Cash surrender value: what you would actually receive if you cancelled today, after any surrender charges and any outstanding policy loans are subtracted.
Ask the insurer for both figures, plus your “cost basis,” which is generally the total premiums you have paid minus any amounts you have already received tax-free. Your cost basis matters if you are thinking about taxes.
How Can You Cash Out on Life Insurance?
There are four main options. Each one affects your coverage differently.
1. Surrender the policy
Surrendering means cancelling the policy and receiving the cash surrender value. Coverage ends, so your beneficiaries will no longer receive a death benefit. Surrender charges may apply, especially in the early years of the policy.
2. Take a policy loan
Many whole life policies let you borrow against your cash value. The insurer charges interest, and you are not usually required to follow a fixed repayment schedule. However, any unpaid loan and interest is subtracted from the death benefit. If the loan grows larger than the cash value, the policy can lapse.
3. Make a partial withdrawal
Some permanent policies allow you to withdraw part of the cash value. A withdrawal usually reduces both the cash value and the death benefit, and not every whole life policy offers this option. Check your contract or ask the insurer.
4. Sell the policy (life settlement)
In a life settlement, you sell your policy to a third party for more than the cash surrender value but less than the death benefit. The buyer takes over premium payments and receives the death benefit later. Life settlements are regulated at the state level, and consumer guides from the National Association of Insurance Commissioners (NAIC) and state insurance departments encourage owners to understand fees, tax effects and the buyer’s licensing before agreeing to a sale.
How Do the Options Compare?
This side-by-side view summarises the trade-offs.
| Option | Coverage after | Main cost or risk |
|---|---|---|
| Surrender | Coverage ends | Surrender charges; possible tax on gains |
| Policy loan | Continues, reduced by loan balance | Interest; lapse risk if loan grows too large |
| Partial withdrawal | Continues, usually reduced | Lower death benefit; possible tax above basis |
| Life settlement | Ends for your family | Fees; tax effects; eligibility often limited by age and health |
Will You Pay Taxes When You Cash Out?
Tax treatment depends on the option and your cost basis. As a general rule described in IRS guidance such as Publication 525, if you surrender a policy and receive more than your cost basis, the gain is usually taxable as ordinary income. Policy loans are generally not taxed while the policy stays in force, but if the policy lapses or is surrendered with a loan outstanding, part of the loan may become taxable. Withdrawals are often treated as a return of basis first.
Some policies that were funded very quickly can be classified as modified endowment contracts, which follow different tax rules. Because every situation is different, talk to a tax professional before you cash out. This article does not give tax advice.
Are There Alternatives to Cashing Out?
If your goal is to lower costs rather than raise cash, you may be able to keep some protection in place:
- Reduced paid-up insurance: many whole life policies let you use the cash value to buy a smaller policy that needs no further premiums.
- Using dividends: if your policy pays dividends, they may be able to cover part of the premium.
- Accelerated death benefit: some policies include a rider that pays part of the death benefit early if you are diagnosed with a qualifying serious illness. Our guide to riders in final expense insurance policies explains how riders work.
- Changing how you pay: reviewing payment terms for whole life insurance policies can show whether a different premium schedule fits your budget better.
What Should You Check Before Cashing Out?
Use this checklist before you sign anything:
- Request a current statement showing cash value, surrender value, loans and cost basis.
- Ask about surrender charges and how long they apply.
- Think about who depends on the death benefit and how they would cover final expenses without it.
- Ask whether you could qualify for new coverage at your current age and health if you needed it later.
- Compare surrender, loan, withdrawal and reduced paid-up options side by side.
- Speak to a tax professional about the likely tax effect.
- If considering a life settlement, confirm the buyer is licensed in your state and get more than one offer.
Frequently Asked Questions
Can you cash out a term life insurance policy?
Usually not. Standard term life insurance does not build cash value, so there is nothing to cash out if you cancel. Some term policies include a return-of-premium feature or can be converted to permanent coverage, which may build cash value over time. Check your policy documents or ask your insurer which options your specific contract includes.
How long does it take to cash out a whole life policy?
Timelines vary by insurer. Once you submit a signed surrender or loan request and any required forms, many insurers process the payment within a few weeks. Delays can happen if paperwork is incomplete or ownership details need to be confirmed. Ask the insurer for its current processing time before you rely on the money.
Is it better to borrow against life insurance or surrender it?
It depends on your goals. A policy loan can provide cash while keeping coverage in force, but interest and any unpaid balance reduce the death benefit. Surrendering ends coverage but removes future premiums. If your family still relies on the protection, a loan or reduced paid-up option may be worth discussing with a licensed agent first.
Can I cash out my parent’s life insurance policy?
Only the policy owner can surrender, borrow against or sell a policy. If your parent owns the policy, they must make the request, or someone with legal authority such as a valid power of attorney may act for them. Beneficiaries cannot cash out a policy while the insured person is alive.
Do I lose my coverage if I take a policy loan?
No, a policy loan does not end coverage by itself. The policy stays in force as long as premiums are paid and the loan balance does not exceed the cash value. Any unpaid loan and interest will be deducted from the death benefit, so your beneficiaries would receive less unless the loan is repaid.
Conclusion
You can cash out on life insurance when you own a permanent policy with cash value, through surrender, a policy loan, a partial withdrawal or a life settlement. Each option trades some or all of your family’s protection for money now, and some can trigger fees or taxes. Start by requesting your policy figures, compare every option, consider alternatives such as reduced paid-up coverage and get tax guidance before you decide.
This article is for general information only and is not insurance, legal or tax advice. Coverage, eligibility and prices vary by state, carrier and individual circumstances.
Not sure whether to keep, change or replace your coverage? Speak with a licensed FE Life agent for a free, no-pressure review of your options and a personalized quote.
