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Can You Cash Out a Term Life Insurance Policy?

Term life insurance is designed to help protect your loved ones financially if you suddenly pass away. It provides them with a death benefit and typically expires after 10, 20, or 30 years.

Term life insurance differs from whole life insurance and other permanent policies in that you can’t cash it out. However, you may be able to sell your term life policy. Let’s dive deeper into term life insurance, what policies you can cash out, and alternatives to cashing out a term life policy that you might want to consider.

Can you cash out term life insurance?

Since a term life insurance policy doesn’t come with a cash value component, it’s not possible to cash it out. This policy solely includes a death benefit that your beneficiaries may receive if you die before the end of the policy’s term. Permanent life insurance, such as universal and whole life policies, comes with a death benefit and a cash value account that you may can cash out while you’re still living.

Can you sell a term life insurance policy?

You may have the option to sell a term life insurance policy to a third-party company. This process is known as a life insurance settlement. Selling your policy depends on several factors, such as the insurance company you chose, how much coverage you have, and whether your policy can be converted. Keep in mind that with a life insurance settlement, you'll sell your policy for less than the death benefit.1

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How to sell your term life insurance policy

Here are the basic steps you can take to sell your term life insurance policy:2

1. Find a reputable broker: You’ll share information and documents regarding your policy with a broker. Then, the broker will let you know whether or not it’s feasible to sell it.

2. Make a sale: The broker will do their research and likely match you to a buyer who will take over your policy. You can expect the buyer to pay the price you agreed to and make the premium payments on your behalf. Then, once you pass away, the buyer will receive the death benefit payout.

What life insurance policies can you cash out?

Here are some common types of life insurance policies that can be cashed out:

Whole life insurance

Whole life insurance lasts for the rest of your life if you continue to pay your premiums. With this permanent life policy, part of your premium payments helps build cash value, which you may be able to take advantage of through a withdrawal, loan, or policy surrender.

Universal life insurance

Universal life insurance is a permanent policy that lets you change your premiums and death benefit over time to meet your needs. There’s also a cash value account, which earns interest and allows you to withdraw money from or borrow against it. Universal life policies typically cost less than whole life insurance.3

Variable universal life insurance

Variable universal life insurance involves a cash value component that you have some control over. With this type of permanent life insurance, you can choose from various investment options that are based on market performance, rather than a specific interest rate.

Alternatives to cashing out or selling a term life insurance policy

If you have a term life insurance policy you can’t cash out and you don’t want to sell it, consider these alternatives:4

Adjust your term life insurance coverage

Many life insurance companies understand that life happens and are willing to work with you if your premiums are no longer affordable. If your life insurance company allows it, you can lower your coverage level and enjoy lower premiums. This option is worth considering if you’re struggling to pay your premiums.

Convert to a permanent life insurance policy

You might be able to convert your term life insurance policy to a permanent policy that builds cash value, such as whole life, universal life, or variable universal life insurance. Just keep in mind that your premium payments will increase.

Cancel your term life insurance policy

You won’t receive any benefits if you cancel your term life insurance policy or let it lapse. But going this route can get rid of your premium payments if you need to make more room in your budget.

Learn more about life insurance

Permanent life insurance comes with a cash value component that you can access in several ways. While you can’t cash out term life insurance, you can sell your policy. Additionally, you may have other options if you want to change your coverage, such as lowering your premium payments or converting to a permanent policy.

Aflac offers term life insurance with premiums that fit most budgets. But if you prefer a life insurance policy with cash value, you can consider getting a whole life insurance plan. Chat with an agent to learn more about the life insurance policies we offer and get a quote!

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