You can cash in your life insurance at any time as long as the policy has a cash value. You can end or not renew a term life insurance policy, but it has no cash value at that time. So technically you cannot cash in term insurance because you don't receive anything. Permanent life insurance policies build a reserve as a savings component. You receive a cash-surrender value when cashing them in.
Term Life Policies
Term life insurance lasts for a specified time determined by you when you purchase the policy. Periods of the policy may last from 10 to 30 years. The policy stays in effect as you continue to meet regular premiums. If you stop making payments, fail to renew or cancel the policy, the policy ends with no payouts to beneficiaries. There is no savings or cash value component in term life. You might get a refund depending on when you chose to end the policy. If you outlast the policy's term, there are also no payouts to beneficiaries. Term life insurance is less expensive than permanent life insurance. The premiums may increase as you get older.
Cash Value Benefits
Cash value insurance includes whole life, universal life and variable universal life. It is typically more expensive than term life, but the premiums usually stay level throughout your lifetime. Meanwhile, a part of your premium goes into a savings portion, which gathers interest and other earnings without being subject to taxes. You can borrow against the cash value or cash in the policy. Although the policy is no longer in effect when you cash it in, you receive the cash value.
Cashing in your permanent life insurance policy is only a good investment if you collect the surrender value after about 15 to 20 years, according to Insure.com. The accumulated value takes time to reach a desirable rate of return, so you don't look at cash value insurance as an investment. Cashing it in usually means you need the money, but you could be losing necessary protection for your family in case of your death. If you have more than one life insurance policy, cashing in one of them would still provide your beneficiaries with coverage.
Once you decide to cash in your policy, companies usually send you a form to fill out to cash out. You can request a form over the phone or by mail. You might be required to have a form notarized or provide necessary verification that you want to cash in the policy. The process may take a few weeks before you receive a check.
Alternative Use of Cash Value
Instead of cashing in the policy, you can use the accumulated cash value in permanent life insurance to handle your premium payments. Cash values grow steadily in the beginning, but may increase rapidly from tax-deferred interest later on. You can keep your life insurance coverage intact without having to spend more money on payments. In a sense, you are "cashing in" the amount to take care of premiums.
- Comstock Images/Comstock/Getty Images