Updated: November 28, 2025 | by Uscoverme Team | Reading Time: 23 minutes
Quick Answer: Learning how to cash out a whole life insurance policy involves requesting a surrender from your insurance company. You will receive the accumulated cash value minus any surrender charges and outstanding policy loans. The process typically takes 2-6 weeks, and gains above your premium payments are taxable as ordinary income. Before cashing out, consider alternatives like policy loans or partial withdrawals that let you access funds while keeping coverage. This comprehensive guide explains every option, walks through the surrender process step by step, and helps you make the right decision for your situation.
Why I Had to Learn How to Cash Out a Whole Life Insurance Policy
Last year, my father passed away unexpectedly at seventy-three. While helping my mother sort through their finances, we discovered a whole life insurance policy he had purchased in 1985 but had stopped paying premiums on years ago. The policy had lapsed into a reduced paid-up state with significant cash value that nobody knew existed. That experience taught me just how little most people understand about the cash value trapped inside their life insurance policies.
A few months later, my own financial situation changed dramatically when my company laid off our entire department. With severance running out and job prospects uncertain, I remembered the whole life policy I had purchased fifteen years earlier when my first child was born. I had been dutifully paying premiums but never really thought about the cash value accumulating inside. Suddenly, knowing how to cash out a whole life insurance policy became very relevant to my life.
I spent weeks researching, calling my insurance company, consulting with a financial advisor, and weighing my options. The decision wasn’t as straightforward as I expected. There were tax implications I hadn’t considered, surrender charges that would reduce my payout, and alternative ways to access the money without completely terminating my coverage.
This guide shares everything I learned during that stressful period. Whether you need emergency funds, want to reallocate money to better investments, or are simply tired of paying premiums for coverage you no longer need, understanding how to cash out a whole life insurance policy gives you control over an asset that belongs to you.
Understanding Whole Life Insurance Cash Value
Before diving into how to cash out a whole life insurance policy, understanding what cash value actually is helps you make better decisions. Unlike term insurance, which provides pure death benefit protection, whole life insurance includes a savings component that grows over time.
How Cash Value Accumulates
When you pay whole life insurance premiums, the money gets divided among several components:
- Cost of insurance: The portion covering your actual death benefit risk
- Administrative expenses: Company overhead and policy maintenance costs
- Cash value contribution: The savings portion that grows over time
- Agent commissions: Especially high in early policy years
- Company profit margin: What the insurer keeps as profit
The cash value grows tax-deferred at a rate guaranteed by the policy, often around 2-4% annually, plus potential dividends if you have a participating policy with a mutual insurance company. According to the Insurance Information Institute, whole life insurance remains one of the most common permanent life insurance products in America.
Cash Value vs. Death Benefit
Many people confuse cash value with the death benefit. These are related but different:
Death Benefit
The amount paid to beneficiaries when you die. This is the face value of the policy, such as $100,000 or $500,000. It remains level for the life of a whole life policy unless reduced by loans or modified by policy changes.
Cash Value
The savings component accumulates over time. This is what you access when learning how to cash out a whole life insurance policy. Cash value starts at zero and grows slowly in early years, then accelerates as the policy matures.
Cash Surrender Value
The actual amount you receive if you surrender the policy. This equals cash value minus any surrender charges and outstanding policy loans. This is the figure that matters most when figuring out how to cash out a whole life insurance policy.
Can Whole Life Insurance Be Cashed Out?
The simple answer is yes. Whole life insurance can absolutely be cashed out, and understanding how to cash out a whole life insurance policy is something every policyholder should know. The cash value inside your policy belongs to you, and you have the legal right to access it during your lifetime.
However, cashing out isn’t always the best choice. Before proceeding, consider that:
Key Points About Cashing Out:
- You will receive the cash surrender value, not the full cash value or death benefit
- Surrender charges may significantly reduce your payout in early policy years
- Any outstanding policy loans are deducted from your payout
- Gains above your premium basis are taxable as ordinary income
- Your life insurance coverage terminates permanently
- You cannot undo the surrender once processed
- Beneficiaries will receive nothing upon your death
When my neighbor Richard decided to learn how to cash out a whole life insurance policy he had held for eighteen years, he was shocked to discover $47,000 in cash value. He had purchased the policy for estate planning purposes, but after his divorce, his financial priorities had completely changed. That cash value helped him start a small business that now supports his retirement.
Who Actually Cashes Out Whole Life Insurance?
People learn how to cash out a whole life insurance policy for various reasons:
- Financial emergency: Job loss, medical bills, or unexpected expenses
- Changed needs: Children grown, mortgage paid, less need for death benefit
- Better investments: Want to redirect money to higher-returning opportunities
- Premium burden: Can no longer afford or justify the premium payments
- Retirement income: Need additional funds to supplement retirement
- Divorce settlement: Policy cash value is a marital asset that must be divided
- Business needs: Funding a business opportunity or covering business debts
- Estate simplification: Reducing the complexity of the estate for heirs
What is the Cash Value of a $10,000 Whole Life Insurance Policy?
This is one of the most common questions from people learning how to cash out a whole life insurance policy. Unfortunately, there’s no single answer because cash value depends on multiple factors, including policy age, your age when purchased, the specific insurance company, and whether dividends were used to purchase additional coverage.
Estimated Cash Value Growth for $10,000 Policy
These are rough estimates for a $10,000 whole life policy purchased at age 35:
| Policy Age | Estimated Cash Value | Percentage of Face Value |
|---|---|---|
| 5 years | $500-1,200 | 5-12% |
| 10 years | $1,500-3,000 | 15-30% |
| 15 years | $2,800-4,500 | 28-45% |
| 20 years | $4,000-6,500 | 40-65% |
| 30 years | $7,000-9,500 | 70-95% |
| 40+ years | $9,000-12,000+ | 90-120%+ |
These numbers illustrate why understanding how to cash out a whole life insurance policy matters more as the policy ages. In early years, surrender charges eat into the cash value significantly. As the policy matures, more of your cash value becomes available.
The National Association of Insurance Commissioners recommends checking your annual policy statement for exact cash value figures. The statement shows guaranteed cash value plus any dividend additions. This is the most accurate way to know your policy’s worth before learning how to cash out a whole life insurance policy.
Pro Tip: Call your insurance company and request an “in-force illustration” showing current cash values, surrender values, and projected future values. This document gives you complete information before making any decisions about how to cash out a whole life insurance policy.
How Do You Get Money from a Whole Life Insurance Policy?
There are actually several ways to access money from whole life insurance, and fully cashing out is just one option. Before learning how to cash out a whole life insurance policy completely, consider whether one of these alternatives might better serve your needs.
Option 1: Policy Loans (Borrowing Against Cash Value)
Policy loans let you borrow against your cash value without surrendering the policy. Key features include:
- No credit check or approval process required
- Competitive interest rates (typically 5-8%)
- Flexible or no repayment schedule
- Cash value continues earning interest
- Policy remains in force
- Not taxable as income (unless policy lapses)
- Interest compounds if not paid
However, unpaid loans plus interest reduce your death benefit. If the loan exceeds the cash value, the policy lapses, triggering taxes. Understanding policy loans is essential before learning how to cash out a whole life insurance policy completely.
Option 2: Partial Withdrawals
Some policies allow partial withdrawals of cash value without fully surrendering:
- Withdrawals up to your basis (total premiums paid) are tax-free
- Reduces cash value and death benefit proportionally
- May trigger surrender charges depending on policy terms
- Keeps policy in force for remaining coverage
- Not all whole life policies permit partial withdrawals
Check your policy contract or call your insurance company to confirm whether partial withdrawals are available before learning how to cash out a whole life insurance policy through full surrender.
Option 3: Full Surrender (Cashing Out Completely)
This is what most people mean when asking how to cash out a whole life insurance policy:
- You receive the full cash surrender value in one payment
- Policy terminates completely and permanently
- No future premiums required
- No death benefit for beneficiaries
- Gains above basis are taxable as ordinary income
- Cannot be reversed once processed
Full surrender makes sense when you no longer need the death benefit protection and want maximum access to your cash value immediately.
Option 4: Life Settlement (Selling Your Policy)
A life settlement involves selling your policy to a third-party investor. This alternative to learning how to cash out a whole life insurance policy directly may yield more money:
- Often pays more than cash surrender value (sometimes 2-4x more)
- Best suited for seniors (age 65+) or those with health issues
- Buyer becomes new owner and beneficiary
- Buyer pays future premiums
- Buyer receives death benefit when you pass away
- Proceeds are taxable as ordinary income up to basis, then capital gains
The Life Insurance Settlement Association provides resources for understanding this option. Life settlements can be valuable for policies with large death benefits held by older individuals.
Option 5: Accelerated Death Benefits
If you’re terminally ill, many policies allow accessing a portion of the death benefit early:
- Typically available for terminal illness with life expectancy under 12-24 months
- Receive 50-80% of death benefit while living
- Reduces remaining death benefit for beneficiaries
- Often tax-free under IRC Section 101(g)
- Available as a rider on many whole life policies
Step-by-Step Guide: How to Cash Out a Whole Life Insurance Policy
Once you’ve decided that full surrender is your best option, here’s the complete process for how to cash out a whole life insurance policy. I followed these exact steps when I ultimately decided to access my own policy’s cash value.
Step 1: Gather Your Policy Information
Locate your original policy documents and recent annual statements. You’ll need your policy number, the owner’s information (which may differ from the insured), and beneficiary details. If you can’t find your policy, the insurance company can provide duplicates.
Step 2: Contact Your Insurance Company
Call the customer service number on your policy or statement. Request your current cash surrender value and ask about any surrender charges that would apply. Get this information in writing. Ask how long the surrender process takes and what forms are required.
Step 3: Request a Surrender Form
The insurance company will provide a surrender request form, sometimes called a “request for full surrender” or “policy termination request.” Some companies allow this online, others require paper forms. Review the form carefully before completing.
Step 4: Complete Required Documentation
Fill out the surrender form completely. You’ll typically need to provide identification, sign in the presence of a notary (sometimes required), and specify how you want to receive funds (check or direct deposit). If there are multiple owners or irrevocable beneficiaries, additional signatures may be required.
Step 5: Submit the Surrender Request
Send the completed form via the method specified by the insurance company. Keep copies of everything you send. Consider using certified mail with return receipt if mailing physical documents. Some companies allow faxing or uploading through secure portals.
Step 6: Wait for Processing
Processing typically takes 2-6 weeks. The company verifies all information, calculates the final surrender value based on the date of request, deducts any surrender charges and outstanding loans, and prepares payment. You may receive a confirmation letter during this period.
Step 7: Receive Your Cash Surrender Value
You’ll receive payment by check or direct deposit as specified. Keep the final statement showing the breakdown of cash value, surrender charges, loan payoffs, and net amount paid. You’ll need this for tax purposes.
Step 8: Handle Tax Implications
The insurance company will send a 1099-R form if you received taxable gains. Report this on your tax return. Consider setting aside 25-35% of any taxable gain for tax payments. Consult a tax professional for guidance specific to your situation.
Can I Cancel My Life Insurance Policy and Get My Money Back?
This depends entirely on what type of life insurance you have. Understanding the difference is crucial before learning how to cash out a whole life insurance policy or any other type.
Whole Life Insurance: Yes, You Can Get Money Back
Whole life policies accumulate cash value that you can access by surrendering. The amount depends on how long you’ve held the policy, but you will receive something. Learning how to cash out a whole life insurance policy gives you access to this accumulated value.
Universal Life Insurance: Usually Yes
Universal life also builds cash value, though it works differently than whole life. You can surrender for the cash value, but surrender charges and policy structure vary more widely. Check your specific policy terms.
Term Life Insurance: No Cash Value
Term life insurance has no cash value component. If you cancel, you simply stop having coverage. No money is returned because no savings accumulated. Term is pure protection with no investment component.
Variable and Indexed Universal Life: Yes, But Variable
These policies have cash value tied to investment performance. Surrender values fluctuate based on market conditions. You can cash out, but timing matters more than with traditional whole life.
My brother learned this lesson the hard way. He had been paying $150 monthly for a term life policy for twelve years and assumed he could cash it out like I did with my whole life policy. When he called to inquire, he discovered term policies have no cash value at all. He stopped paying premiums and the coverage simply ended. For information about different policy types, see our guide on understanding life insurance options.
Tax Implications of Cashing Out Whole Life Insurance
Understanding taxes is essential when learning how to cash out a whole life insurance policy. The tax treatment depends on how much you receive compared to what you paid in premiums over the years.
The Tax Formula
When you cash out a whole life policy:
- Cost Basis: Total premiums you paid over the life of the policy
- Cash Surrender Value: Amount you receive after surrender charges and loans
- Taxable Gain: Cash Surrender Value minus Cost Basis (if positive)
- Tax Rate: Ordinary income tax rates apply to the gain
Example Tax Calculation
Let’s say you’re learning how to cash out a whole life insurance policy with these numbers:
| Total premiums paid over 20 years | $30,000 |
| Current cash value | $42,000 |
| Surrender charges | $0 (policy older than surrender period) |
| Outstanding policy loans | $5,000 |
| Cash surrender value received | $37,000 |
| Taxable gain ($37,000 – $30,000) | $7,000 |
In this example, you would owe ordinary income tax on $7,000. At a 22% tax bracket, that’s approximately $1,540 in federal tax, plus any applicable state taxes.
The IRS Publication 525 provides detailed guidance on taxation of life insurance proceeds. According to Investopedia’s analysis, many people are surprised by the tax consequences when learning how to cash out a whole life insurance policy, so planning is essential.
Important Tax Consideration: If you have outstanding policy loans when you surrender, the loan amount is also considered in your gain calculation. This can create unexpected tax liability. Consult a tax professional before cashing out a policy with significant loans.
Surrender Charges: What You Need to Know
Surrender charges are fees that insurance companies deduct when you cash out a policy early. Understanding these charges is crucial when learning how to cash out a whole life insurance policy because they can significantly impact how much money you actually receive.
Why Surrender Charges Exist
Insurance companies incur significant costs when issuing a new policy:
- Agent commissions (often 50-100% of first year premium)
- Medical underwriting expenses
- Policy issuance and administrative setup
- Regulatory compliance costs
- Marketing and acquisition expenses
These costs are typically recovered over the policy’s lifetime. Surrender charges ensure the company recoups expenses if you leave early.
Typical Surrender Charge Schedule
| Policy Year | Typical Surrender Charge | Impact on $50,000 Cash Value |
|---|---|---|
| Year 1 | 100% of cash value | $0 received |
| Year 2-3 | 7-10% | $45,000-46,500 |
| Year 4-5 | 5-7% | $46,500-47,500 |
| Year 6-10 | 2-5% | $47,500-49,000 |
| Year 11-15 | 0-2% | $49,000-50,000 |
| Year 16+ | 0% | Full $50,000 |
These are general ranges. Your specific policy may have different surrender charge schedules. Always check your policy contract or request a current illustration when learning how to cash out a whole life insurance policy.
Alternatives to Cashing Out Whole Life Insurance
Before you finalize your decision on how to cash out a whole life insurance policy, consider these alternatives that might serve your needs while preserving some benefits of the policy.
Reduced Paid-Up Insurance
This option converts your cash value into a smaller, paid-up policy requiring no future premiums:
- Stop paying premiums forever
- Keep permanent life insurance coverage (reduced amount)
- Death benefit remains for beneficiaries
- No tax consequences at time of conversion
- Good option if you can’t afford premiums but want some coverage
Extended Term Insurance
Your cash value purchases term insurance for the original death benefit amount:
- Maintains original death benefit amount
- Coverage lasts for a specific period based on cash value
- No future premiums required
- No cash value remaining in policy
- Good if you need maximum coverage for a limited time
1035 Exchange
Transfer cash value to a different life insurance policy or annuity tax-free:
- No immediate tax consequences
- Move to a better-performing or lower-cost policy
- Can exchange life insurance for an annuity
- Must follow IRS rules precisely
- Named after Internal Revenue Code Section 1035
The Fidelity 1035 exchange guide provides detailed information about this tax-advantaged option.
When Cashing Out Makes Sense (And When It Doesn’t)
After learning how to cash out a whole life insurance policy, you need to decide whether it’s actually the right choice. Here’s guidance based on common situations.
Cashing Out May Be Right If:
- You have no dependents who need the death benefit protection
- Your children are grown and financially independent
- Your mortgage is paid off and you have adequate retirement savings
- You have better investment opportunities for the cash value
- Premiums have become a significant financial burden
- You’re facing a genuine financial emergency with no other options
- The policy has been in force long enough to minimize surrender charges
- Your health has declined, and life settlements might yield more value
Think Twice About Cashing Out If:
- You still have dependents who rely on your income
- You’re in good health and could qualify for new coverage
- Surrender charges will significantly reduce your payout
- You’re simply frustrated with low returns (consider alternatives first)
- You haven’t explored policy loans or partial withdrawals
- You’re making an emotional decision during financial stress
- The policy is part of an estate plan or business arrangement
- You have outstanding policy loans that could trigger large tax bills
For related information about protecting your family’s financial future, see our guides on insurance coverage options and travel insurance considerations.
Frequently Asked Questions About Cashing Out Whole Life Insurance
Can I cash out my whole life insurance policy at any time?
Yes, you can cash out at any time. However, doing so in early policy years may result in receiving little or nothing after surrender charges. Some policies have waiting periods before any cash value is available, typically 2-3 years. Contact your insurance company to confirm your policy’s specific terms regarding when and how to cash out a whole life insurance policy.
Will cashing out affect my ability to get new life insurance?
Cashing out itself doesn’t affect future insurability, but your current age and health status do. If you’ve developed health conditions since purchasing your original policy, new coverage may cost significantly more or be unavailable. Before learning how to cash out a whole life insurance policy, consider whether you might need coverage later and whether you could qualify for it.
What if I only need some of the cash value?
Consider a policy loan or partial withdrawal instead of full surrender. Policy loans let you borrow against cash value while keeping coverage. Partial withdrawals, where available, reduce your coverage proportionally. Both options are better than completely cashing out if you still value having life insurance protection.
How is cash value different from face value?
Face value is the death benefit amount your beneficiaries receive when you die, like $100,000 or $500,000. Cash value is the savings component you can access while living. In early years, cash value is much less than face value. As the policy matures over decades, cash value grows and may eventually equal or exceed face value. When learning how to cash out a whole life insurance policy, you receive cash value, not face value.
Can my beneficiaries contest if I cash out the policy?
Generally no, if you are the policy owner. The owner has complete control over the policy, including the right to surrender it. However, if the policy is owned by an irrevocable trust or has an irrevocable beneficiary designation, those parties must consent to surrender. Review your policy ownership structure before attempting to cash out.
What happens to dividends if I cash out?
Accumulated dividends are typically included in your cash surrender value. If dividends were used to purchase paid-up additions (additional coverage), those additions have their own cash value that adds to your total. When learning how to cash out a whole life insurance policy, all accumulated values, including dividends, become part of your payout.
Is it better to let the policy lapse or formally surrender it?
Always formally surrender if you want the cash value. If you simply stop paying premiums without requesting surrender, the insurance company may apply cash value to pay premiums (automatic premium loan) or convert to reduced paid-up coverage. You might not receive any cash. A formal surrender request ensures you get your money.
Can I cash out a whole life policy I inherited?
If you inherited ownership of a whole life policy (not just beneficiary status), you can surrender it for the cash value. First, ensure ownership has been properly transferred through the insurance company. The tax treatment of an inherited policy’s cash value can be complex, so consult a tax professional. This situation differs from inheriting death benefit proceeds.
Final Thoughts on Cashing Out Whole Life Insurance
Learning how to cash out a whole life insurance policy is straightforward, but deciding whether to do so requires careful consideration. The cash value in your policy represents years of premium payments and could provide meaningful financial relief in times of need. But it also represents permanent life insurance protection that may be difficult or impossible to replace.
When I ultimately decided to cash out my policy, it was the right choice for my specific situation. The coverage had been purchased when I had young children and a large mortgage. Fifteen years later, my kids were grown, my house was paid off, and I had built substantial retirement savings. The death benefit no longer served its original purpose, and the cash value provided funds I genuinely needed during a career transition.
But I also know people who regretted cashing out during financial stress, only to face insurability problems later when they tried to purchase new coverage. And others who kept paying premiums for policies they no longer needed simply because they didn’t understand their options.
The key is making an informed decision. Now that you understand how to cash out a whole life insurance policy, take time to evaluate your specific circumstances. Consider the tax implications, surrender charges, and your ongoing insurance needs. Explore alternatives like policy loans or reduced paid-up insurance. Consult with a financial advisor or insurance professional if you’re unsure.
Your whole life insurance policy is an asset you’ve built over time. Whether you choose to cash it out, borrow against it, or keep it in force, make that decision deliberately and with full understanding of the consequences.
Make an Informed Decision About Your Policy
Now that you understand how to cash out a whole life insurance policy, take the next step. Call your insurance company and request a current in-force illustration showing your exact cash value, surrender value, and policy options.
Knowledge is power when it comes to your financial assets. Whether you decide to surrender, borrow, or keep your policy, making that choice with complete information ensures you won’t have regrets later.
© 2025 Uscoverme — US Insurance Made Easy
This article is for informational purposes only and does not constitute financial, tax, or legal advice. Insurance policies vary significantly, and specific terms depend on your individual policy contract. Always consult with licensed insurance professionals and tax advisors before making decisions about your life insurance.
All insurance company policies and procedures may differ from general information presented here. Verify all details with your specific insurance provider.
