Last Updated on: September 10th, 2025
Reviewed by Kyle Wilson
Life insurance is often purchased with the primary goal of protecting loved ones after death. However, many policyholders do not realize that certain types of life insurance can provide financial benefits while they are still alive. This option is commonly referred to as “cashing out” a life insurance policy.
Cashing out can give you access to the policy’s built-up cash value, but it also comes with potential downsides such as reduced death benefits, surrender charges, or tax consequences. For families and individuals considering this option, it’s important to fully understand how it works, what you can expect to receive, and whether it’s the right financial decision for your situation.
Get Free Quotes
Customized Options Await
A cash out life insurance policy refers to a policy that allows you to access its accumulated cash value while you are still alive.
Essentially, cashing out allows you to treat your policy as a financial asset, though doing so may affect the coverage provided to your beneficiaries.
Yes — but whether you can depends on the type of policy you own:
In short, if your policy builds cash value, you can usually cash it out; if it does not, then it cannot be liquidated.
The process is relatively straightforward but may involve fees or paperwork.
Note: Surrendering a policy means your beneficiaries will no longer receive a death benefit.
One of the most important considerations is taxation.
Example:
Always consult a tax advisor before making a final decision.
The payout depends on several factors:
Example:
A larger $100,000 policy could accumulate tens of thousands in cash value over decades.
Here’s a balanced look at the advantages and disadvantages:
Pros | Cons |
Provides immediate access to cash for emergencies, retirement, or debt repayment. | Reduces or eliminates the death benefit, leaving beneficiaries with little or no payout. |
Offers flexibility—funds can be used for any purpose. | May trigger taxes on gains. |
Can help cover unexpected expenses without needing loans from banks. | Surrender charges or fees can reduce the payout. |
Policy loans may be easier to obtain than traditional loans. | Loans accrue interest and reduce death benefit if not repaid. |
Useful for those who no longer need life insurance coverage. | Could affect estate planning and financial security of dependents. |
Before surrendering your policy, consider these alternatives:
This decision depends on your financial situation and goals.
When it may make sense:
When it may not be ideal:
A financial advisor can help determine whether keeping, cashing out, or restructuring your policy is best.
Cashing out a life insurance policy can be a valuable option for those needing immediate funds, especially if coverage is no longer essential. However, it comes with trade-offs such as reduced death benefits, possible taxes, and surrender charges.
Before cashing out, consider alternatives like loans, reduced coverage, or life settlements. Always consult with a financial advisor or tax professional to fully understand the long-term consequences.
Ultimately, whether you cash out or maintain your policy should depend on your current financial needs, your dependents’ future security, and your overall estate planning goals.
A cash out policy allows you to access the accumulated cash value of your permanent life insurance while alive, either through withdrawal, surrender, or loans.
Yes, if it’s a whole life or universal life policy. Term life policies usually do not allow this.
No, term policies have no cash value, though some may be convertible to permanent policies.
Yes, if the amount you receive exceeds the total premiums you have paid.
It varies based on your policy’s type, premiums, duration, and growth. Request a cash value statement from your insurer for exact figures.
Cash value depends on policy structure and duration, but typically ranges from a few hundred dollars in early years to several thousand after a decade or more.
Senior Writer & Licensed Life Insurance Agent
Iqra is a dynamic and insightful senior writer with a passion for life insurance and financial planning. With over 8 years of hands-on experience in the insurance industry, Iqra has earned a reputation for delivering clear, actionable advice that empowers individuals to make informed decisions about their financial future. At Burial Senior Insurance, she not only excels as a licensed insurance agent but also as a trusted guide who has successfully advised over +1500 clients, helping them navigate the often complex world of life insurance and annuities. Her articles have been featured in top-tier financial publications, making her a respected voice in the industry.
Burial Senior Insurance provides information and services related to burial insurance for senior citizens, including policy options and end-of-life support services.
Copyright © Burial Senior Insurance 2025. All Right Reserved.
