What happens if I take money out of my life insurance policy?

There is no single fixed age to cancel life insurance, but many people no longer need it once they reach their 60s or retirement age.

When You Might Not Need Life Insurance Anymore

• Your mortgage is paid off: You no longer carry large, long-term debts.
• Your children are grown: Your kids are financially independent and finished with school.
• You have enough savings: Your retirement accounts, investments, and Social Security can fully support your spouse or cover final expenses.
• Your term policy is ending: If your term ends and your financial responsibilities are gone, you can let the policy lapse instead of renewing at a much higher cost. Opinions on Reddit are mixed, with some suggesting you keep cheap near-expiration policies just in case, while others advise dropping unneeded coverage immediately.

When You Should Keep Life Insurance

• You still have dependents: Someone relies on your ongoing income to live.
• You have outstanding debts: Large medical bills, business loans, or a remaining mortgage exist.
• You want to leave an inheritance: You want to provide tax-free wealth or cover estate taxes.
• It is a permanent policy: Whole life policies build cash value, and canceling them can trigger surrender fees or taxes.

You can read more about evaluating your needs at Fidelity Life or check details on buying coverage as a senior via CBS News.

What happens after 10 years of paying life insurance depends entirely on whether you have a 10-year term policy or a 10-pay permanent policy.

10-Year Term Life Insurance

If you bought a 10-year term policy, the contract reaches its end date after 10 years.

• Coverage ends: Your protection stops, and no death benefit is paid out if you outlive the term.
• No money back: Term insurance does not build cash value, so you do not get your paid premiums back (unless you bought a rare return-of-premium rider).
• Your options: You can let the policy expire, apply to renew it at a much higher rate based on your current age, or convert it to permanent coverage if your policy allows.

10-Pay Whole Life Insurance

If you bought a specialized 10-pay whole life policy, you planned to finish all required payments in 10 years. Read more details on how this works via Western & Southern.

• Policy is paid-up: You no longer owe any monthly or annual premium payments.
• Lifelong coverage: Your permanent death benefit stays active for the rest of your life.
• Cash value continues: The accumulated cash value inside the policy keeps growing on a tax-deferred basis, and you can still borrow against it if needed.

Selling your life insurance policy usually gives you a much higher payout than surrendering it, but surrendering is much faster if you need immediate cash.

Selling Your Policy (Life Settlement)

Selling your policy to a third-party investor is known as a life settlement.

• Higher Payouts: You typically receive 4 to 9 times more money than a standard cash surrender value.
• Requirements: You usually must be 65 or older, have a policy face value over $100,000, and have experienced changes in health.
• Time Needed: The process takes time for medical underwriting and finding a buyer.
• You can read a detailed breakdown of Annuity.org to compare the financial impact of both choices.

Surrendering Your Policy

Surrendering means you cancel your permanent life insurance policy directly with your insurance company.

• Fast Cash: The insurance company pays you the remaining cash value minus cancellation fees.
• Less Money: Fees are very high in the first 5 to 10 years, meaning you get much less money than selling.
• Loss of Benefits: You lose your entire death benefit and any future protection for your family.
• Learn more about how fees affect your payout with Mutual of Omaha.

Which Option is Better?

• Choose selling if you qualify, want to maximize your financial return, and can wait a few weeks or months for the transaction.
• Choose surrendering if you need money immediately, have a smaller policy, or do not qualify for a life settlement.

The cash value of a $1,000,000 life insurance policy depends entirely on how long you have held the policy, the type of coverage you bought, and how much you have paid into it over time.

Term Life vs. Permanent Life

• Term Life Insurance: A $1,000,000 term policy has no cash value. It only pays out the death benefit if you pass away during the active term (like 20 or 30 years).
• Permanent Life Insurance (Whole or Universal Life): These policies build a savings component, known as cash value, using a portion of your monthly or annual premium payments.

How Cash Value Accumulates

• Early Years: Cash value starts at zero and grows very slowly in the first few years because most of your early payments go toward administrative fees and the cost of insurance.
• Over Time: As you continue paying premiums, the cash value grows through guaranteed interest rates or dividends. On a $1,000,000 whole life policy, cash value can eventually grow to tens or hundreds of thousands of dollars after decades of compounding.
• Not Equal to Face Value: The cash value is separate from the $1,000,000 death benefit. If you surrender (cancel) the policy for its cash surrender value, you typically receive only a fraction of the face value—often ranging from a few thousand dollars early on to a portion of your contributions later—minus any surrender fees.

Alternative Options for Cash Access

• Policy Loans: You can borrow money against your accumulated cash value from the insurance company, but unpaid loans reduce your final death benefit.
• Life Settlements: Selling an unwanted permanent policy to a third-party buyer typically yields between 10% and 25% of the $1,000,000 face value ($100,000 to $250,000), which is often higher than a standard policy surrender. You can learn more about how policies are evaluated through resources like Fidelity Life.

A $25,000 life insurance policy typically costs anywhere from $20 to $150 per month for a term life policy, and between $50 and $250 per month for a whole life policy.

Because $25,000 is a relatively low coverage amount, it is most frequently structured as a permanent whole life plan—often referred to as burial or final expense insurance. Exact pricing depends heavily on your age, gender, health status, and whether you smoke.

Average Cost by Policy Type

Sample Estimates by Age (Whole Life)

To illustrate how age impacts permanent coverage, data from providers like the AAA Whole Life Chart shows the following estimated rates for a $25,000 to $30,000 policy:

• Healthy 55-year-old female: ~$81–$88 per month
• Healthy 55-year-old male: ~$91–$122 per month
• Seniors (Ages 75–85): Rates scale significantly higher, ranging anywhere from $150 to over $400 per month depending on exact age and health risks.

Core Factors Driving Your Premium

1. Age and Gender: Premiums rise as you get older. Women also generally pay less than men because they have a longer statistical life expectancy.
2. Health Classification: Lower coverage limits ($25,000) rarely require a medical exam, but answering "yes" to certain severe health questions on a simplified application can bump you into a pricier guaranteed-acceptance pool.
3. Tobacco Use: Smoking or using nicotine products can double or triple your rates, even on small-face-amount policies.