Updated November 22, 2021|2 min read
Like other types of insurance, people buy life insurance and make premium payments hoping that they’ll never need to make a claim. Unlike permanent life insurance, which earns interest and can be canceled for a payout or used for a life insurance loan, traditional term life insurance doesn’t come with an option to cash in on your policy.
But, cashing in on a term policy shouldn’t be your first priority. Term insurance is the simplest and most affordable way to secure the most important part of life insurance: protection for your family. The best choice for most people is to buy a term life insurance policy and invest the savings, even if they outlive their coverage.
You can’t cancel term life insurance and get cash like you can with permanent life insurance
You can sell your policy to a life settlement broker, but it’s not recommended
You can add riders that let you withdraw from the death benefit for critical medical care
Return of premium term life insurance refunds premiums you’ve paid when your policy expires, but is costly
There are a few ways you can get money out of your term life insurance policy, but most aren’t the best choice. Common options include:
Living benefits riders: Some policy add-ons allow you to pull from the death benefit to pay for medical expenses if you have a critical or terminal illness. The option can support end-of-life care, but decreases the payout your beneficiaries get from your policy.
Return of premium life insurance: This added feature ensures any premiums you pay into your policy are refunded when your coverage expires. But, a return of premium policy is 30% more expensive than traditional term life insurance.
Selling your life insurance policy: While it’s legal to sell your policy to a third party, profits are minimal after taxes and any broker’s fees.
If being able to tap your life insurance policy for cash is important to your financial plans, then whole life insurance may be a better fit.
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The only way to get money back from traditional term life insurance is to cancel during your policy’s free look period, which is usually 10 to 30 days from when your coverage began. Your policy will state the exact length of your free look period.
There’s no penalty if you cancel after the free look period ends, but the most you’ll get is a partial refund if you’ve already paid for future weeks or months of your policy.
You don’t get any money back if you outlive your policy’s term. If you decide later that you want a return of premium insurance, you’ll need to buy a new policy.
There aren’t many cost-effective ways to cash in on a term life insurance policy. Instead, consider using term life insurance for what it is — a financial safety net for your family — and save the money you would have spent on a return of premium policy or find other ways to make your policy work for your needs.
If you outlive your term policy, your beneficiaries don’t get a payout and you aren’t refunded any of the premiums you paid. You can convert to whole life if you still need coverage.
You do not get money back when your term life insurance policy expires unless you purchased a return of premium life insurance policy.
You can sell a term life policy to a life settlement broker, but the profits are low. You can’t surrender your policy for a payout from your insurer the way you can with permanent life insurance.
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