How to Cash Out a Life Insurance Policy Before Its Expiration

Understanding Policy Types and Cash Value

Only permanent life insurance—such as whole life, universal life, or variable universal life—builds cash value that can be accessed before the policy ends. Term policies, which simply provide a death benefit for a set period, have no cash value and cannot be cashed out.

Eligibility to Withdraw or Surrender

If your policy is permanent, you may either:

• Take a partial withdrawal of the accumulated cash value.
• Take a policy loan against the cash value.
• Surrender the entire policy for its cash surrender value.

Each option reduces the death benefit and may trigger fees or taxes, especially if the cash value exceeds the total premiums paid.

Steps to Cash Out Before July 2020

1. Contact your insurer or agent to request a cash‑value statement.2. Review the statement for any surrender charges, which typically decrease the longer the policy has been in force.3. Decide whether a withdrawal, loan, or full surrender best meets your financial need.4. Complete the insurer's required forms, providing identification and a signed request.5. Receive the funds via check or direct deposit, usually within 2‑4 weeks.

Tax and Financial Considerations

Withdrawals up to the amount of your total premiums are generally tax‑free. Anything above that is taxed as ordinary income, and if you are under 59½, a 10% early‑distribution penalty may apply. Loans are not taxable as long as the policy remains in force, but unpaid loans reduce the death benefit and can cause the policy to lapse.

Alternatives to Cashing Out

If you need cash but want to keep the death benefit, consider:

• Converting a term policy to a permanent one, if the insurer allows conversion.
• Accelerated death benefit riders that pay out in cases of terminal or chronic illness.
• Borrowing from other sources, such as a personal loan or home equity line, which may have lower tax impact.

Key Dates and Fees Table