Can you cash in on term life insurance?

You can only get money back from term life insurance if you cancel during the free look period. Otherwise, you can’t cash in on traditional term life insurance, but return of premium term insurance refunds your premiums when your coverage ends.

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Andrew HurstSenior Editor & Licensed Auto Insurance ExpertAndrew Hurst is a senior editor and a licensed auto insurance expert at Policygenius. His work has also been featured in The New York Times, The Wall Street Journal, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, ValuePenguin, and Property Casualty 360.

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Antonio Ruiz-CamachoAntonio Ruiz-CamachoAssociate Content DirectorAntonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

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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 life insurance 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.

Life insurance terms you should know
  • Beneficiaries: The people you name on your life insurance policy to receive the lump sum of money — also known as the death benefit — when you die.

  • Cash value: The portion of a permanent life insurance policy’s monetary value that grows tax-deferred over the life of the policy.

  • Death benefit: The amount of money the life insurance company will pay your beneficiaries when you die.

  • Face amount: The dollar amount, or death benefit, your beneficiaries receive if you die while your life insurance policy is active.

  • Insured: The person who is covered by the insurance policy.

  • Policy: The legal document that includes the terms and conditions of your life insurance contract.

  • Policyholder: The person who owns an insurance policy. Usually, this is the same person as the insured.

  • Permanent life insurance: A type of life insurance that lasts for the rest of your life and usually includes a cash value account.

  • Premium: The amount you pay your insurance company to keep your coverage active. Premiums are typically paid monthly or annually.

  • Riders: Add-ons to a life insurance policy that provide more robust coverage, sometimes for an extra cost.

  • Term life insurance: A life insurance policy that lasts for a set number of years before it expires. If you die before the term is up, your beneficiaries receive a death benefit.

  • Underwriting: The process where an insurance company evaluates the risk of insuring you and determines your final rate.

How to get money back on your term life insurance

There are a few ways you can get money out of your term life insurance policy, but most aren’t the best choice. These are some of the most common options.

  • 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 it decreases the payout your beneficiaries get from your policy.

  • Return of premium life insurance: This added feature ensures that 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.

Do you get money back if you cancel a traditional term life policy?

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. 

Learn more about how life insurance works

Author

Andrew Hurst is a senior editor and a licensed auto insurance expert at Policygenius. His work has also been featured in The New York Times, The Wall Street Journal, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, ValuePenguin, and Property Casualty 360.

Editor

Antonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

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