Cash-Out Options · Free Comparison · No Obligation
Yes, You Can Cash Out a Life Insurance Policy While You're Alive
There are three ways to do it: surrender the policy to your insurer, borrow against it, or sell it through a life settlement. They pay very differently. The same policy that surrenders for $22,000 can sell for $100,000 or more, and your insurance company is not required to tell you that in most states.
This page compares all three honestly, including when each one is the wrong choice. Reviewed by Jeff Hallman, Florida-licensed viatical settlement broker, License 0266.
- Licensed & Regulated
- No Upfront Fees
- All 3 Options Compared
- No Obligation to Accept
3 Ways
To Get Cash From a Policy
Nearly 9x
Settlement vs. Surrender (LISA 2025)
$0
Cost to Compare
Free · No Obligation · Confidential
See Which Option Pays You the Most
Prefer to speak with someone right now?
(321) 270-02793 Ways
To Get Cash
Nearly 9x
Settlement vs. Surrender
$0
Cost to Compare
The Three Ways to Cash Out, at a Glance
Your insurance company will readily explain the first two. The third is the one that usually pays the most, and only six states require insurers to mention it before you cancel a policy.
Option 1
Surrender the policy
Cancel the policy and receive its cash value, minus surrender charges and any loans. Fast (days), but it is almost always the lowest payout: typically 3 to 5 percent of the death benefit.
Best when: the policy is small, you are under 65, and you need money this week.
Option 2
Borrow against it
A policy loan gives you up to about 90 percent of the cash value in days, with no credit check, and your coverage stays in force. Interest of 5 to 8 percent compounds whether you pay or not.
Best when: you need a smaller amount and your family still needs the death benefit.
Option 3 · Usually pays the most
Sell it (life settlement)
Sell the policy to institutional buyers through a licensed broker who makes them compete. In 2025 the average settlement paid $212,066 versus a $24,360 average surrender (LISA). Takes 60 to 90 days, costs nothing upfront, and you must qualify.
Best when: you are 65 or older, the policy is $100,000+, and you no longer need the coverage.
Side by Side: the Same Policy, Three Outcomes
A typical scenario: a 76-year-old with a $500,000 universal life policy and $22,000 in cash surrender value.
| Surrender | Policy loan | Life settlement | |
|---|---|---|---|
| Cash received | ~$22,000 | Up to ~$19,800 | $80,000 to $130,000+ |
| Keep death benefit? | No | Yes (reduced) | No |
| Timeline | Days | Days | 60 to 90 days |
| Ongoing costs | None | 5 to 8% yearly interest | None |
| Tax treatment | Ordinary income on gains | Tax-deferred until lapse | Favorable 3-tier structure |
| Upfront cost | $0 | $0 | $0 |
| Main risk | Leaving money on the table | Policy can lapse | None; no obligation to accept |
If you need a small amount fast, surrendering or borrowing gets cash in your hands in days. If you are getting the most value from a policy you no longer need, competition between buyers is what moves the number. See the full guide to selling your life insurance policy.
When a Life Settlement Is NOT the Right Choice
The settlement column usually wins on dollars, but it is not right for everyone. Skip it, and use one of the other two options, if:
- Your family still needs the death benefit. If the payout protects a spouse, a mortgage, or a dependent, selling removes that protection. A loan or partial withdrawal keeps coverage in force.
- Your policy does not meet the thresholds. Under $100,000 in face value, or an insured under 65 in good health, generally will not attract competitive offers.
- You need money within days. Settlements take 60 to 90 days. Surrendering or borrowing is much faster.
- The offers do not beat surrender by enough. On some smaller whole life policies with high cash values, the gap may not justify the longer process. An honest broker will tell you this upfront.
In every other case, the costly mistake is the quiet one: surrendering a policy for $22,000 that the open market would have paid six figures for. Compare before you cancel.
What Your Policy Type Lets You Do
Not every policy offers every option. Check your annual statement or call your insurer if you are not sure what you own.
| Policy type | Has cash value? | Can it be sold? | Notes |
|---|---|---|---|
| Whole life | Yes | Yes | Highest cash values; the settlement-to-surrender gap can be smaller |
| Universal life | Yes | Yes, the most commonly sold type | Rising cost-of-insurance charges make many of these worth selling |
| Guaranteed universal life | Minimal | Yes, often strong offers | Low premiums make these attractive to buyers |
| Variable universal life | Yes | Yes, but offers tend to be lower | High internal costs reduce buyer interest |
| Term life | No | Only if convertible, or after a major health change | The conversion option can unlock real value |
Universal life owners squeezed by rising charges should read why universal life premiums keep going up. Term owners should start with whether a term policy can be sold before the conversion window closes.
What the Gap Can Look Like
An 87-year-old woman owned a $2 million universal life policy. Her premiums were climbing and she no longer needed the coverage.
Her insurer's surrender offer
$43,500
Competitive bidding result
$920,000
Drawn from actual settlement outcomes facilitated through our broker network. More than 21 times the surrender offer. Not every case produces a multiple like this; individual results vary with age, health, policy type, and market conditions.
How Each Option Is Taxed
| Method | How it's taxed |
|---|---|
| Surrender | Gain above your total premiums paid is taxed as ordinary income |
| Policy loan | Generally not taxable, unless the policy lapses with a loan outstanding |
| Life settlement | Three tiers: premiums back tax-free, gain to cash value as ordinary income, the rest at lower capital gains rates |
The settlement framework comes from IRS Revenue Ruling 2009-13 and the Tax Cuts and Jobs Act of 2017, which made the tax-free portion larger for most sellers. State rules vary, so talk to a tax professional before deciding. The plain-English version is in our tax treatment guide.
Frequently Asked Questions
Can you cash out a life insurance policy before death?
Yes. If you own a permanent policy (whole life or universal life), you can surrender it for its cash value or borrow against it at any time. You may also be able to sell the policy through a life settlement, which typically pays several times more than surrendering. Most states require a policy to be at least 2 years old before it can be sold.
How much cash will I get if I cash out?
It depends on the method. Surrendering typically pays only 3 to 5 percent of the death benefit. A life settlement typically pays 10 to 25 percent of the death benefit for qualifying policies. In 2025, the average life settlement paid $212,066 versus a $24,360 average cash surrender value, nearly nine times more (LISA).
Can you cash out term life insurance?
Term policies have no cash value to withdraw or surrender. However, a term policy is not necessarily worthless: if it has a conversion option, or if your health has changed significantly since the policy was issued, it may qualify to be sold through a life settlement instead.
Is there a penalty for cashing out a life insurance policy?
Surrender charges may apply if the policy is relatively new, typically within the first 10 to 15 years. Policy loans have no penalty, but unpaid interest compounds and can cause the policy to lapse. Life settlements have no penalties or upfront costs; the broker’s commission is disclosed in writing and comes out of the proceeds.
Do I have to pay taxes when I cash out life insurance?
Generally, the portion representing a return of the premiums you paid is tax-free, and gains above that may be taxable. Life settlements have the most favorable treatment of the three options: a three-tier structure where part of the gain is taxed at lower capital gains rates. Always consult a tax professional about your specific situation.
Selling a policy has been legal since the Supreme Court's Grigsby v. Russell decision in 1911, and 43 states regulate the transaction today. Learn the basics in what is a life settlement, or check whether you qualify in about two minutes.
Before You Cancel Anything, Find Out What Your Policy Is Actually Worth
The surrender value is the floor, not the price. Comparing takes about two minutes, costs nothing, and you are under no obligation. If a sale ever goes through, the broker's commission comes out of the proceeds and is disclosed in writing first.
Sources
- Life Insurance Settlement Association (LISA), 2025 Annual Market Data (released May 19, 2026): average settlement payout of $212,066 versus $24,360 average cash surrender value.
- IRS Revenue Ruling 2009-13 and the Tax Cuts and Jobs Act of 2017, Section 13521: the three-tier tax framework for life settlement proceeds.
- National Association of Insurance Commissioners, Life Settlements: state regulatory framework; disclosure-before-lapse requirements exist in six states.
- Grigsby v. Russell, 222 U.S. 149 (1911): life insurance policies are transferable personal property.
This page is educational and is not financial, tax, or legal advice. Eligibility, payouts, tax treatment, and regulations vary by state and individual circumstances. Surrender charges, loan interest rates, and withdrawal provisions vary by policy contract; confirm yours with your insurance company. Settlement proceeds may be taxable in part and can affect eligibility for need-based programs such as Medicaid. Consult a licensed tax professional, attorney, or benefits counselor before making decisions about your policy. Individual results vary; there is no guarantee that every applicant receives an offer. Last reviewed June 10, 2026.