How to draw money from life insurance?


Editorial team Published on

You can cash out a permanent life insurance policy while alive through withdrawals, policy loans, surrendering the contract, or selling it via a TruStage Cash Out Guide.

Only permanent policies like whole life or universal life build a cash value component; term life policies cannot be cashed out.

Ways to Cash Out or Access Cash Value

  • Direct Withdrawal: Withdraw part of your cash value. Amounts up to your total paid premiums (cost basis) are usually tax-free, but withdrawals exceeding that limit count as taxable income. This permanently reduces your death benefit.
  • Policy Loan: Borrow against your cash value using the insurer as a lender and your policy as collateral. There is no credit check, but interest accrues, and any unpaid balance reduces the final death benefit.
  • Policy Surrender: Cancel the policy entirely to collect the cash surrender value. This terminates your coverage completely and may trigger surrender fees and taxes.
  • Life Settlement: Sell your policy to a third-party company for a lump sum that is higher than the surrender value but less than the death benefit.

Most users on Reddit agree that cash value takes many years (often 10 to 15) to build enough funds to make tapping into the account worthwhile.

How to Complete a Surrender or Withdrawal

  • Review the Contract: Check your policy documents for the exact cash value, surrender fee schedules, and any restrictions during the first few policy years.
  • Contact Your Insurer: Speak with your provider or agent to request current figures for your cash value and surrender value.
  • Submit in Writing: Complete, sign, and return the official withdrawal or surrender forms along with required identity verification.