Is it better to surrender or sell a life insurance policy?
Asked by: Brice Stanton | Last update: July 25, 2025Score: 4.2/5 (45 votes)
What is the downside of selling your life insurance policy?
Not all proceeds received from the sale of your life insurance policy are tax-free. It is important to know that the proceeds you receive from a life settlement may be accessible by your creditors.
Should I surrender or sell my life insurance policy?
Surrendering your life insurance policy is one way you can liquidate, but selling a policy you don't need may be a better strategy. Selling has several advantages to surrendering it, including higher proceeds and greater flexibility. Surrendering the policy is faster but selling it usually brings you more money.
How much can you sell a $100,000 life insurance policy for?
Just like any other insurance policy, a life settlement payout for a $100,000 whole life policy would depend on your age, health condition, and policy premiums. A typical life settlement is worth around 20% of your policy value, but can range from 10-25%.
How much tax will I pay if I cash out my life insurance?
Is life insurance cash value taxable? Fortunately, the cash value of life insurance grows tax-free. This means that, in many cases, you won't have to worry about paying taxes on it.
Should I Surrender or Sell My Whole Life Insurance Policy
How to avoid capital gains tax on life insurance payout?
WITHDRAW OR BORROW
The amount of premiums you have paid into your policy generally represent what is called your basis in your policy. If you wish to take this money out, you can withdraw it tax free, meaning you pay no income or capital gains taxes.
When should you cash out a whole life insurance policy?
Many advisors generally recommend waiting at least 10 to 15 years to cash out your whole life insurance policy.
How much will I receive if I surrender my life insurance policy?
Fortunately, it's easy to calculate your cash surrender value. First, add up the total payments you've made toward your life insurance policy. Then, subtract the surrender fees your insurance company will charge. You'll be left with the actual payout you may receive if you terminate or surrender your life insurance.
What qualifies you to sell your life insurance policy?
Meet the qualifying factors
Own a policy with a death benefit of $100,000 or more – anything less than that typically doesn't qualify unless there are significant health impairments. People who sell their life insurance policies are typically over age 60.
How much would I get if I sold my life insurance policy?
While the amount you will receive from selling your life insurance will vary depending on a few factors, including your specific policy and its amount, a general rule of thumb is that most people receive 40-70% of the policy's face value through their viatical settlement.
Do you lose money when you surrender a life insurance policy?
The insurance company will pay you the cash surrender value, if there is any available. Generally, this is the cash value of the policy to date, less any loans, loan interest, premiums outstanding, or surrender fees. Your life insurance coverage ends, and some or all the money you receive may be subject to tax.
Why would I want to sell life insurance?
Why would someone want to sell their life insurance policy in the first place? Many people choose to do so because of the associated cash surrender value. If there is a sudden and unexpected need for liquidity, life insurance is sometimes the best option.
Is it bad to cash out a life insurance policy?
You're just taking money straight out of cash value, not borrowing it, so there's nothing to repay. But again, this reduces the death benefit available to your loved ones. Your insurance company may or may not assess a partial surrender charge for this option.
What is the hardest part of selling life insurance?
Life insurance is a very difficult product to sell. Simply getting your prospect to acknowledge and discuss the fact they are going to die is a hard first step. When and if you clear that hurdle, your next task is creating urgency so they buy right away.
Do I have to pay taxes if I sell my life insurance policy?
The portion of the sale amount you receive that is equal to what you've paid in premiums (your “cost basis”) will not be taxed. The portion that exceeds your cost basis, but is less than the cash value of the policy, is subject to income tax. Lastly, any amount above the cash value is subject to capital tax gains.
Can a term life insurance policy be converted to whole life?
With most insurers, you can typically convert without taking another medical exam or answering health questions, as long as you do so within a certain time frame or by a certain age, such as 75. The deadline for converting and the type of permanent policies available depend on the life insurance company.
What is the cash value of a $100,000 life insurance policy?
Example: $100,000 Life Insurance Policy
The amount of money you're offered will vary based on your age and health. If you are older, then you may be able to get a significant chunk of money. A company may offer you a payout in the range of $10,000 to $30,000, but this can vary from policy to policy.
Is selling a life insurance policy worth it?
Selling your life insurance policy may be a good idea in some cases, such as if you need the money or if the reasons for paying the premiums no longer exist. Still, it's not something to rush into without serious consideration.
Do life insurance companies buy back policies?
Yes, you can sell a term life insurance policy for cash through a process called a life settlement. Life settlement companies purchase policies from policyholders, providing a lump sum cash payment in exchange for the ownership and beneficiary rights of the policy.
Do I pay taxes if I surrender my life insurance policy?
The total of premiums you have paid into the policy is known as the cash basis. When you surrender the policy, the amount of the cash basis is considered a tax-free return of principal. Only the amount you receive over the cash basis will be taxed as regular income, at your top tax rate.
How much money will I get if I surrender my policy after 5 years?
If, in case, the insurance holder has paid premiums for more than 4 years and less than 5 years, then 90% of the complete maturity sum is provided. If the policyholder pays premiums for more than 5 years, they receive 100% of the sum assured (maturity amount).
When should I surrender my whole life policy?
If you want to surrender your policy and can afford to delay the process, waiting until surrender fees have decreased will help you get more money. However, you may find the policy becomes unaffordable in your budget or you simply don't need coverage anymore.
Do you pay taxes on whole life insurance cash out?
If you withdraw up to the amount of the total premiums paid into the policy, the transaction is not taxable as it is considered a return of premiums. If, however, you then withdraw any gains on the policy (like dividends), then these amounts could be taxed as ordinary income.
What happens when a life insurance policy is surrendered for its cash value?
In most cases, your policy's cash surrender value will be paid in a lump sum. Depending on your policy, however, you may receive periodic payments over time.
Can I cancel my life insurance policy and get my money back?
Unless you're canceling a policy during a free-look period, your premium won't be refunded if you cancel your life insurance policy. There are a few instances where you may see some money returned. For example, you may receive your accumulated cash value if you cancel a permanent policy, minus any taxes and fees.