How to Get Cash from a Term Life Insurance Policy

Cash Value of Term Life Insurance

Unlike whole life insurance, term life insurance does not accumulate any cash value. This type of policy is meant for short-term needs, such as extra protection until an auto loan is paid off or until the kids reach age 18. Term life insurance is a low-cost way to provide immediate security, instead of waiting a lifetime to generate a cash benefit. Consumers should weigh the advantages of low premiums/no cash value versus higher premiums/accumulating cash value when requesting a quote for life insurance.

Get Cash from Policy Loans

Because term life insurance has no cash value, policyholders cannot take out loans directly from the insurer. In many cases, however, policyholders can use the term life policy as collateral for a traditional bank loan or cash advance personal loan.

In order to get cash from a term life insurance policy, both the lender and the insurance company must be willing to participate. If the policy does not already exist, the borrower should confirm the ability to use the policy as collateral when choosing the best life insurance quote.

The policy owner completes a collateral assignment form, which temporarily transfers certain rights to the lender. Once the borrower has repaid the loan, the bank no longer has a stake in the insurance proceeds. In the event of the borrower’s death, the lender is guaranteed to be repaid for the remaining balance of the loan, with any excess cash being distributed to the beneficiaries.

Converting Term Life Insurance Policy

A long-term strategy for cashing out a term life insurance policy is to purchase the policy with the intention of later converting it into a permanent policy. Consumers are responsible for assuring that the policy is convertible during the quote for life insurance. Within a certain timeframe, the policyholder has the option of exchanging the term policy for an equivalent permanent policy that builds cash value. Policy owners can then request loans from the cash balance or sell the death benefit to a third party through a viatical settlement.

Choosing the Best Insurance

When selecting the best life insurance quote, consumers should always consider their current and future needs. The policy with the cheapest payments should not always win the best life insurance quote comparison.