If you want to give up your coverage 
and cash out your life insurance policy, you should first try to sell it in a life insurance cash settlement. You might want to do this if your premiums are high and you no longer have dependents, or they’re all financially secure. In a life insurance cash settlement, a company buys your life insurance policy for an amount that’s greater than the cash value but less than the death benefit. Some companies even buy term life insurance policies for cash, but only if you’re quite old or sick, so likely to pass away during the policy term.
You’ll have to pay income and capital gains taxes on the settlement. Be aware that any brokers that help pair you up with a settlement company will typically take a cut. But the net effect is that you will usually get more money than you would by surrendering your policy.
Once the policy is sold, the life insurance settlement company takes over premium payments and becomes the policy beneficiary. The downside is, you won’t always find a buyer and the process of being evaluated by a life insurance settlement company can take several weeks.
If you can’t get a settlement and want to cash out your life insurance, you can surrender your policy to the insurer. Simply let your insurer know and they will pay you the life insurance policy’s net cash value.
The net cash value is the “actual” surrender value of the policy. You will typically find it listed separately in your life insurance statements. The net cash value will generally be lower than your total accumulated cash value for the first several years of coverage as it’s reduced by fees and surrender charges. However, if you’ve had your policy in place between 10 to 15 years, the net cash value is likely to be close or equal to the total accumulated cash value.
Make a partial withdrawal of the cash value
If you don’t want to get rid of your life insurance coverage entirely but have fewer financial obligations, you can also withdraw a portion of the cash value. This provides you cash while reducing the life insurance policy’s death benefit. For example, if your children have done well in their careers, you may be less concerned about passing on an inheritance but still want some coverage for your spouse.
- Variable and universal life insurance policies – A partial withdrawal is similar to receiving a portion of the death benefit early, as the payout to beneficiaries is reduced by the amount you withdraw. So long as you don’t withdraw more money than you’ve paid in premiums, there are no taxes on the partial withdrawal. If you withdraw more than you’ve paid, it will be taxed as income.
- Whole life insurance policies – We typically don’t recommend a partial withdrawal if you have a whole life insurance policy , as the insurer will often reduce your death benefit by a greater amount than you withdraw. You might want to consider a life insurance settlement or simply surrender the policy if it’s too large.
Increase your death benefit with paid-up additions
If you have a sizable cash value but don’t have a use for it, you ount of money left to your beneficiaries. This option isn’t always available, so you’ll need to check with your insurer, but it’s a simple way to make sure your family doesn’t just lose the cash value you’ve built up over time.
Similarly, if you have a participating whole life insurance policy from a mutual insurer, you can use any dividends you receive to purchase paid-up additions. Buying paid-up additions is similar to buying a small single-premium life insurance policy as you increase the policy’s cash value and death benefit but don’t have ongoing payments.