Should I Cash Out My Life Insurance Policy? A Five-Step Decision
Written and reviewed by Hans Goldstein, licensed insurance producer, NPN 20602398 · CA Insurance License #4273294Last reviewed · Published October 3, 2026
Step 1: what do you need the money for, and when?
A one-time expense, a monthly shortfall, or simply wanting out of the premium lead to different answers. A short-term need points to a loan; ongoing income may point to a partial withdrawal or an annuity exchange; wanting out of the premium may point to reduced paid-up coverage.
AI voices. Education, not tax or legal advice. Hans is paid a commission if you buy a policy through him. Comment REVIEW on the video for the checklist.
Step 2: compare the four routes
Getting cash from a policy
| Route | Cash now | Coverage after | Tax |
|---|---|---|---|
| Surrender | Full cash surrender value | None | Gain over premiums paid is ordinary income |
| Policy loan | Up to the loan limit | Continues, reduced by the loan | Generally none while in force (non-MEC) |
| Partial withdrawal | Part of cash value | Continues, usually reduced | Basis first, then gain (non-MEC) |
| Life settlement (sale to an investor) | Often more than surrender for older insureds | None for you | Complex; parts can be ordinary income and capital gain |
Life settlements are reportable policy sales with their own tax rules (IRC 101(a)(3)).
Before you cash out, get the numbers.
Send your email and I'll send the in-force illustration request letter. Return the illustration and I'll review it within one business day.
We’ll email it to you. Hans Goldstein · NPN 20602398.
Rather talk it through? Or book 15 minutes on Hans’s calendar.
Step 3: check what you would give up
Could you buy this coverage again at your age and health, and at what price? Does anyone depend on the death benefit, including for estate taxes or a business agreement? Coverage you cannot replace is worth more than its surrender value.
Step 4: know the tax before you sign
On a surrender, gain over your premiums paid (basis) is ordinary income (IRC 72(e)). If there is a loan, the loan plus the cash you receive, minus basis, is the taxable amount (loan and lapse taxes).
Step 5: correct one myth
You may have been told permanent life insurance is the only insurance that gives money back. That is a myth: return-of-premium term refunds premiums, some accidental death policies have return-of-premium riders, and hybrid long-term care policies return premium. The fair point is that permanent life builds cash value you can reach while keeping coverage, which is exactly why a loan or partial withdrawal deserves a look before you surrender. How return of premium works.
Cash surrender value explained · Should I surrender my IUL?
Send the statement or letter. Get a plain answer.
Within one business day you get a written read: what the letter or statement means for your policy, the options, and the one to take first. No pressure to change anything.
Rather talk it through? Or book 15 minutes on Hans’s calendar, or call 213-414-2808.
Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer
Frequently asked questions
Sources
- 26 U.S.C. §72 (annuities and certain proceeds), Cornell LII
- IRC 101(a)(3), added by TCJA (Pub. L. 115-97 sec. 13522, Dec. 22, 2017; transfers after Dec. 31, 2017), says the transfer-for-value exceptions in the second sentence of 101(a)(2) do NOT apply to a reportable policy sale (acquirer with no substantial family, business or financial relationship with the insured) (as of 2017-12-22)
- 26 U.S.C. §1035 (certain exchanges of insurance policies), Cornell LII
Hans Goldstein, CA Insurance License #4273294 · NPN 20602398 · Goldstein & Co. LLC dba Goldstein Insurance Services, CA License #6016830
Contact: hans@hansgoldstein.com · 213-414-2808
General education, not tax or legal advice. Tax treatment depends on your facts and on current law, which can change. Talk to your CPA or estate attorney. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Guarantees apply only to the contractual terms of the policy. Caps, participation rates, loan rates, charges and dividends are not guaranteed and can change. Hans is paid a commission by the insurer if you buy a policy through him. For life insurance, ask and he will tell you what he earns on your specific policy. Product and company names are trademarks of their owners. Goldstein Insurance Services is an independent agency, not affiliated with or endorsed by any insurer named here. Life insurance requires underwriting; not everyone qualifies. This page describes products in general terms; read the policy and the insurer's disclosures before you buy.