How To Get Money From Your Life Insurance: Cash Out Vs Borrowing
Life insurance is designed to protect loved ones after you die, but some policies can also provide financial flexibility while you are alive. Depending on your policy type and goals, it may be possible to borrow against your policy, withdraw cash value, use living benefits, surrender coverage, or sell the policy for cash through a life settlement.
Table of Contents
Quick Comparison: Your Main Options
Option | Best Fit When | Tradeoffs To Understand |
Policy Loan | You want to keep coverage and need short-term liquidity | Interest accrues, the unpaid balance reduces the death benefit, and lapse risk if the policy becomes underfunded |
Cash Value Withdrawal | You need cash and prefer not to borrow | Cash value and death benefit can drop, and taxes may apply on gains above premiums paid |
Use Cash Value To Pay Premiums | Premiums are becoming hard to afford, but you still want coverage | Cash value is depleted over time, which can affect long-term policy performance |
Living Benefits Or Accelerated Death Benefit | You have a qualifying health condition and need funds for care | Reduces the death benefit; eligibility depends on the rider and carrier rules |
Policy Surrender | You no longer want coverage and want a simple exit | Coverage ends, surrender charges may apply, and taxes may apply on gains |
Sell The Policy | You no longer need coverage, or premiums are unaffordable, and you want to compare against surrender | Coverage transfers to a buyer; you can sell only once. Timing and eligibility requirements apply |
If you want to compare the selling option, you can use the life settlement calculator or request a free estimate.
Understand Policy Types and Cash Value
Option 1: Borrowing Against Life Insurance
A life insurance policy loan is a loan from your insurer that uses your policy’s cash value as collateral. Because the cash value is collateral, policy loans typically do not require a credit check, and funding can be relatively fast once you request it.
Eligibility Requirements and How Soon You Can Borrow
Borrowing generally requires a permanent policy with enough cash value to support a loan. There is no universal waiting period, but it can take time for the cash value to build. Guardian’s overview of when you can borrow from a life insurance policy explains that the timing depends on the cash value threshold and policy structure.
How Much You Can Borrow
Loan maximums vary by carrier, but many insurers cap policy loans at a percentage of cash value. Guardian notes that insurers often allow borrowing up to around 90 percent of the current cash value, depending on the policy.
How To Borrow Against Life Insurance
- Contact your insurer to request the current cash value and maximum loan amount.
- Confirm the interest rate, compounding method, and how interest is applied to the loan balance.
- Request the loan and choose whether to repay monthly, pay interest only, or pay the loan down over time.
Risks To Understand Before Borrowing
- Interest accrues, so the balance can grow if you do not make payments.
- Unpaid loan balances typically reduce the death benefit.
- If the loan balance plus interest grows beyond the available cash value, the policy can lapse.
- If a policy lapses or is surrendered with an outstanding loan, taxes may be triggered depending on your basis and policy structure.
Option 2: Withdraw Cash Value
Withdrawals allow you to take money directly from the cash value of the policy. Withdrawals do not accrue interest as loans do, but they can reduce both the cash value and the death benefit. Tax treatment depends on the policy structure and the amount you withdraw. For common taxable scenarios and what requires tax, review how cash value is taxed.
Option 3: Use Cash Value To Pay Premiums
Some permanent policies allow you to use cash value to cover premiums. This can help keep coverage in force when out-of-pocket premiums become difficult, but cash value depletion can affect long-term performance and may increase the risk of lapse if not monitored.
Option 4: Use Living Benefits Or Accelerated Death Benefits
Some policies include riders that allow access to a portion of the death benefit while you are alive if specific medical criteria are met. If you are evaluating this route, start with how living benefits work and how an accelerated death benefit rider is typically used.
Option 5: Cash Out By Surrendering The Policy
Surrendering means you cancel coverage and receive the cash surrender value, which is generally cash value minus surrender charges and any outstanding loan balance. If you need a plain-English definition (and what reduces the cash surrender value you receive), review what cash surrender value means. If you are comparing surrendering a policy to selling, factors to consider before surrendering can help clarify the trade-offs.
Option 6: Sell My Life Insurance Policy For Cash
Selling a policy for cash is typically done through a life settlement. In a life settlement, you sell the policy to a third party, who then takes over the premium payments and becomes the beneficiary. The cash amount is typically more than the cash surrender value but less than the death benefit.
Life settlements are regulated primarily at the state level, and rules such as waiting periods vary by location. If you need to sanity-check your state’s waiting period and common protections, use this state-by-state life settlement regulation overview. If you want a consumer checklist of questions to ask about licensing, privacy, fees, and disclosures, FINRA provides a practical life settlement due diligence checklist.
Who Will Buy My Life Insurance Policy?
Licensed providers or institutional investors can purchase life insurance policies. Eligibility and offers vary by provider, so comparing options can matter.
Basic Steps In The Selling Process
- Application and authorizations to gather policy and medical information
- Underwriting and valuation
- Offer and potential negotiation
- Closing paperwork and ownership transfer
Factors That Affect Value
- Policy size and premium costs
- Policy type and carrier details
- Age and health profile, which influence life expectancy
How Much Can You Get?
Life settlement market data is published by the Life Insurance Settlement Association (LISA). LISA’s 2024 annual market data snapshot reports that member providers paid $601 million to consumers, with an average payout of $222,807 and an average of 6.5 times the carrier cash surrender value. Your specific offer depends on your policy and personal profile, so an estimate helps anchor the comparison.
Cash Out Vs Borrowing: How To Choose
The best option depends on what you are trying to solve and whether you still want coverage.
- If you want to keep coverage and need a smaller amount, a policy loan or withdrawal may be an option.
- If you no longer need coverage or the premiums are not sustainable, surrendering or selling may be an option.
- If you can qualify and want to compare value, a life settlement may be worth evaluating against surrender.
Tax Considerations and Common Triggers
Tax outcomes vary by transaction type and policy structure. These are common themes to review with a qualified tax professional:
- Withdrawals may be taxable on gains above premiums paid, depending on policy structure.
- Loans are often not taxable when taken, but can become taxable if the policy lapses or is surrendered with a balance.
- Life settlement taxation can be complex and may involve different treatment for portions of proceeds. If you want the typical treatment categories spelled out, review life settlement taxation considerations.
If you are reviewing beneficiary taxation basics, the IRS explains when life insurance proceeds are generally excluded from income and when interest can be taxable in its life insurance proceeds FAQ.
Frequently Asked Questions
Can You Cash Out A Life Insurance Policy?
Many permanent policies have cash value that can be accessed through loans, withdrawals, premium offsets, surrenders, or sales. Term policies generally do not have cash value unless they are converted to permanent coverage under the carrier’s rules.
Can You Borrow Against Life Insurance?
Borrowing typically requires a permanent policy with sufficient cash value. The loan is typically made by the insurer and secured by cash value.
How Soon Can I Borrow From My Life Insurance Policy?
There is no universal waiting period, but borrowing generally requires enough cash value to support a loan. If your policy is new or recently converted, it may take time for cash value to accumulate.
How Much Can I Borrow From My Life Insurance Policy?
Limits vary by insurer and policy, but some insurers allow borrowing up to around 90 percent of cash value, as described in Guardian’s explanation of how much you can borrow against life insurance.
How Long Does It Take To Sell A Life Insurance Policy?
Timelines vary based on documentation and underwriting, but many sales take a few months from application to closing.
Can I Back Out If I Change My Mind?
You can typically stop the process before accepting an offer. Many states also require a rescission period after closing, allowing you to change your mind within a defined timeframe.
Can I Sell A Term Life Insurance Policy?
Some term policies may be eligible for conversion to permanent coverage, and some health-related situations may qualify for a viatical settlement. If term conversion is part of your plan, start by selling a term policy when you can qualify.
What Happens To Cash Value At Death?
In many policies, the death benefit is paid to beneficiaries, and any remaining cash value is not paid in addition. The Guardian describes this concept in its explanation of how cash value works at death. Policy terms vary, so confirm details with your insurer.
How Do Policy Loan Rates Compare To Other Borrowing Options?
Policy loan rates vary by policy as the insurers set them. For context on alternative borrowing costs, Bankrate reports the current average personal loan interest rate is 12.26% as of Feb. 25, 2026, though your rate depends on credit and loan terms.
Get A Free Estimate
If you want to compare borrowing, cashing out, surrendering, or selling, an estimate can help you anchor your decision. You can use the life settlement calculator or request a free, no-obligation estimate. If you prefer to speak with someone, you can contact our team or call 1-866-775-3493.
Disclaimer: This article is for educational purposes and does not provide legal, tax, or financial advice. Policy provisions and outcomes vary by insurer, policy type, and state. Consider consulting qualified professionals before making decisions.
