How Long Does it Take to Cash Out Life Insurance Policy?

All you need to know about cashing out your Life Insurance policy.

In the whirlwind of life’s uncertainties, there are moments when we need a fast track to financial stability.

Life insurance serves as a vital safety net offering financial protection to our loved ones when we’re no longer around. However, there may be instances where accessing the funds from your life insurance policy becomes necessary before its intended time. Understanding the timeline involved in cashing out a life insurance policy is crucial to meet your financial needs.

This comprehensive article aims to guide you through the process, unraveling the intricacies and shedding light on the factors that influence the duration. By the end of this article, you’ll gain insights into life insurance policies with cash value, understand the optimal timing for cashing in while you’re alive, and explore alternative financial solutions for challenging times.

What is the cash value of a Life Insurance policy?

In today’s world and economy, where making basic ends meet is becoming harder and more complex, people are often left scrambling for cash to pay their everyday expenses. As it happens, most life insurance policies have a cash value component which you can borrow cash against.

However, there are some drawbacks of using the cash value component of a life insurance policy, besides compromising on your family’s long-term goals, that you should keep in mind. Nevertheless, cash value insurance can be an essential asset if you need some quick cash.

How can you access cash?

Accessing the cash is relatively simple. Cash-value life insurance policies such as whole and universal life insurance build reserves through excess premiums and earnings. But this is only possible if you have a Whole Life or Universal Life insurance. There are several ways to access cash value. Here are five methods to obtain cash from a life insurance policy.

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Image Source: Canva

Partial withdrawal

If you have been paying premiums for a few years and have accumulated a substantial cash value, you can partially withdraw from your cash value life insurance. For example, if you have $50,000 in cash value and need $25,000, you can request a withdrawal from your insurance company. In this case, you would receive a check for $25,000 while keeping the policy active.

It’s important to note that the beneficiaries would receive a reduced death benefit of $175,000 instead of the original face value of $200,000. Additionally, tax implications may be associated with the withdrawn amount, so consulting a tax professional is advisable.

Policy loan

Another option is to take a loan from your life insurance policy. The borrowed amount is typically tax-free, but interest payments are required, similar to borrowing from an external lender. Unlike traditional loans, you are not obligated to repay the loan. However, interest payments must be made, or they will be deducted from the remaining cash value. If the cash value is depleted, the insurance company may cancel the policy due to non-payment. If the loan is fully repaid, the beneficiaries will receive the death benefit upon the policyholder’s demise. Otherwise, the outstanding loan amount and interest will be subtracted from the death benefit.

Surrendering the policy

When you have held a permanent life insurance policy for an extended period and no longer require coverage, you can surrender the policy to the insurance company. This involves receiving the cash surrender value in exchange for relinquishing the policy. However, surrendering the policy means you will no longer have life insurance coverage, and your beneficiaries will not receive a death benefit upon your demise. It’s important to be aware of any surrender charges and potential tax obligations associated with cashing out the policy.

Utilize living benefits

Certain permanent life insurance policies allow cash out before death under specific circumstances. These circumstances may include:

  • Terminal illness: If a policyholder is diagnosed with a terminal illness and has a life expectancy of fewer than 12 months, they can cash in their life insurance policy. The funds can be used to cover living expenses and healthcare costs.
  • Long-term care: Policyholders who require long-term healthcare can cash out their life insurance policy to assist with the associated expenses.
  • Chronic illness: In cases where a person can still reside at home but faces challenges with activities of daily living (such as bathing, eating, or dressing), they may be eligible to cash out their permanent life policy to help cover the costs of care.

If a policyholder is unsure whether their policy includes these “living benefits,” they should contact their insurance company for clarification. Even if the policy doesn’t fully cover long-term care expenses, it can provide valuable assistance.

Note: If the policyholder is eligible for Medicaid assistance, delaying cashing in life insurance benefits is advisable until they clearly understand Medicaid’s impact on potential benefits.

Apply cash value to premium payments

A short-term solution may be available if a policyholder makes premium payments difficult. If they have accumulated sufficient cash value in the policy, they can request the insurer to use that cash to cover the premiums. For instance, if someone has lost their job and wants to ensure the premiums are paid until they find new employment, utilizing the accrued cash can help maintain the policy and alleviate concerns.

Note: once the cash value is depleted, the policyholder will need to resume making payments, as failure to do so may result in the insurer canceling the life insurance policy.

Can I withdraw money from my Life Insurance?

The answer is yes. You can withdraw money from your life insurance policy. However, you can only withdraw money if your policy has a cash value component. Most permanent policies have a cash value policy that can help you in your time of need. But before purchasing a policy, you should always check the terms of the policy and whether it has the components you need.

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Image Source: Canva

Insurance policies with a cash value accumulation are required to provide a status update of the cash accumulated at the end of the year in each of the first twenty years of the policy. You can then withdraw cash or take a loan if your policy has accumulated enough funds. Again, check with your insurance carrier about when you can access the fund.

Exploring the Pros and Cons of Cashing Out Your Life Insurance

Examining the advantages and disadvantages of withdrawing cash from your life insurance can help you decide whether it is the right choice.

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Image Source: Canva

Benefits of cashing out a life insurance policy:

  • Simplicity: Unlike traditional loans, policy loans do not typically require a loan application or credit check. The cash value in your policy acts as collateral, making the process straightforward. You can repay the loan at your own pace, and the payments return to your policy.
  • Low-interest rates: Cash value loans offer favorable interest rates compared to credit card and personal loan rates. Typically ranging from 5% to 8%, these rates can be advantageous compared to other borrowing options. Although withdrawing the money outright avoids interest payments, it reduces your cash value, which takes time to replenish.
  • No impact on credit: Unlike mortgages or personal loans, taking out a life insurance loan does not affect your credit score. Eligibility is primarily determined by the cash value in your policy rather than your creditworthiness.

Drawbacks of cashing out a life insurance policy:

  • Reduced death benefit: Withdrawing funds diminishes your policy’s cash value and death benefit. Similarly, any unpaid loan amounts are subtracted from the death benefit.
  • Limited access to funds: Depending on the insurer, you may be able to access money from your whole-life policy if you have accumulated sufficient cash value over time. If you require funds shortly after acquiring the policy, you may need more accumulated value to borrow or withdraw. The amount you can borrow will also vary depending on the insurance company.
  • Risk of policy lapse: When repaying a policy loan, you must pay interest on the borrowed amount. If you borrow a significant sum and accrue interest that exceeds your cash balance, your policy could lapse and be terminated by the insurer. Consequently, the remaining loan balance might be considered taxable income, resulting in a potentially substantial tax liability.

Considering your financial goals and circumstances, it is essential to carefully consider these pros and cons before deciding to cash out your life insurance. Consulting with a financial advisor can provide further guidance tailored to your situation.

How can you cash out your policy?

You can cash in life insurance while still alive. However, the first thing you need to do is to make sure that your policy has a cash accumulation component. You can check your policy agreement or contact your insurance company if you are not confirmed. You should note that cash value policies would not usually have much accumulated as there are deductions for commissions and fees for the first few years. This brings us to the second step, determining how many funds you have in your cash-value account and if they are enough to withdraw. If you want to opt for a loan, you must inquire about the interest rate.

The next step would be to decide whether to withdraw cash or opt for a loan. This is an important step as loans and withdrawals have different impacts on your policy and would require some research to make sure which one would be better suited for your needs and would be according to your policy.

Experts usually advise that withdrawals are only  made, especially if the accumulated cash is within the premiums paid. This might act as an income and would be subjected to tax. If you are considering taking out a loan, you should find out what the interest rate would be and then compare it to other financial options that may be available to you.

You should also talk to an insurance agent to determine the succeeding steps to either withdrawing or taking a loan and determine how much you would have to pay as charges to receive your funds. All that will be left to do then would be to wait for your funds to arrive. You will receive your funds like you pay your premium payments through a check or automatic debit.

How long does it take to cash out a Life Insurance policy?

Typically, processing your funds can take 7 to 10 working days. However, your insurance company does have the right to delay your payment for up to six months. However, usually, companies do something other than that. Nevertheless, if you have not heard back from your insurance company or policy provider after ten working days, you should contact them and demand a follow-up on your request.

Factors Impacting the Timeline for Life Insurance Payouts

Several factors can influence the timeline for receiving life insurance funds following the death of a policyholder. Here are some key considerations:

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Image Source: Canva
  • Policy Documentation: The accuracy and completeness of the documentation beneficiaries provide can significantly impact the processing time for life insurance claims. To avoid delays, it is crucial to ensure that all necessary documents, such as the death certificate, policy details, and beneficiary information, are submitted promptly and accurately.
  • Processing Time of the Insurance Company: Different insurance companies have varying processing times for life insurance claims. Some companies may have efficient and streamlined processes, leading to quicker reviews and payouts. Understanding the specific timeline associated with the insurance company where the policy is held is essential to set realistic expectations.
  • Policy Type: The type of life insurance policy can also affect the payout timeline. For instance, term life insurance policies often have a simpler claims process, which may result in faster processing times. On the other hand, permanent life insurance policies may involve more intricate calculations and evaluations, potentially leading to longer processing times.
  • Policy Amount and Complexity: The payout timeline can be influenced by the amount and complexity of the life insurance policy. Larger policy amounts may require additional scrutiny and verification, which can extend the processing time. Similarly, policies with complex features like investment-linked policies may necessitate extra time for evaluation and payout calculations.

Considering these factors is crucial when estimating the timeline for receiving life insurance funds. Policyholders and beneficiaries should be aware of the specific requirements and procedures involved, and they can seek guidance from the insurance company or a financial advisor to navigate the process more effectively.

Is it better to cash out your life insurance policy than to take out a loan?

Deciding whether to cash out life insurance relies on your financial circumstances and the intended purpose of the funds. If you possess multiple life insurance policies, cashing out one may not significantly impact your overall coverage. Alternatively, if you’re considering switching to a more affordable policy, cashing out your current coverage allows you to recoup some of the premiums you’ve paid.

Taking a loan or withdrawing cash may be viable when needing money and desiring to avoid conventional loans or credit lines. However, assessing the potential impact on the policy’s death benefit is crucial. If your dependents rely on the death benefit to cover final expenses, outstanding debts, or everyday living costs, diminishing the policy’s value may not be advantageous.

Before cashing out of life insurance, reflect on the following questions.

  1. Is this coverage still necessary for me?
  2. Will I replace this policy with a new one if I sell or surrender it?
  3. How much cash value do I require or wish to withdraw?
  4. Is there a possibility of incurring taxes on the cashes-out amount?

Thus, the bottom line is, you need to carefully decide whether or not you need funds as the cash value component of a life insurance policy should not be used as it defeats the main purpose of a permanent life insurance policy which is making things easier for your family after your passing. The whole policy will become useless if your beneficiaries do not receive a sufficient death benefit. And if you do make a withdrawal or a loan against your policy, it would be deducted from the final payout, so it is advised to make your decision carefully and speak to an insurance agent to guide you better about your situation.

Guidelines for streaming life insurance payouts

Although the duration for receiving life insurance funds relies on the insurance company’s processing time and the complexity of the claim, beneficiaries can adopt certain tips to potentially expedite the payout process.

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Image Source: Canva
  1. Timely submission of all required documents: Ensure you promptly and accurately submit all necessary documentation to the insurance company, including all the death certificates and policy details. Any delays in providing the required paperwork can extend the processing time.
  2. Regular follow-up with the insurance company: Keep in touch with the insurance company regularly to inquire about the status of your claim. Confirm that all essential information has been received and processed.
  3. Consider professional assistance if necessary: If you are unfamiliar with the claims process or encounter difficulties, it may be beneficial to seek guidance from a qualified professional, such as an attorney or financial advisor, who can help navigate the process efficiently.
  4. Maintain patience and understanding: While waiting for the life insurance payout can be frustrating, it is crucial to comprehend the insurance company’s procedure and timelines. Delays can arise due to various factors, and managing your expectations is important.

Reasons for delays in denials and acceptance in the process of life insurance claims

Submitting a legitimate claim for death benefits typically proceeds smoothly with proper documentation. However, certain factors can result in delays or, in rare cases, claims denials. These factors include the following.

  • Circumstances of the insured’s death: If the policyholder’s demise occurs during an activity not covered by their policy, such as bungee jumping, the death benefit may be withheld.
  • Insurance fraud: Insurers thoroughly investigate claims to identify potential fraud. The payout may be reduced or denied if the policyholder provided false information on their insurance application or if suspicious circumstances surround their death.
  • Missing documentation or policy: To file a claim, it is generally necessary to possess a copy of the deceased’s policy and other required documents. The claim process may be prolonged if these things are not readily available or can not be located.
  • Policy Expiration: If the policyholder ceases payment of their premiums, allowing the policy to lapse, the death benefit will not be granted as the coverage is no longer valid.
  • Death during the contestability period: In the first two years of a policy, a death may be subject to contestability, leading insurers to investigate for potential fraud in the insurance application. Although this investigation might delay the payout, the full death benefit will be awarded if the deceased provides honest information.

How do I file an insurance claim?

To file a life insurance claim on behalf of the deceased, follow these steps, which can typically be done by visiting the insurer’s website or contacting them directly:

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Image Source: Canva
  1. Contact the Insurer: Contact the insurance company through their website or directly to initiate the claims process.
  2. Gather Essential Information: Be prepared to provide the following details about the deceased policyholder:
    1. Full Name
    2. Date of Birth
    3. Policy Number
    4. Cause of Death
  3. Additional Information: The insurer may also require other pertinent information related to the claim, such as funeral costs or any additional documents they deem necessary.
  4. Prepare the Required Documentation:
    1. Death Claim Form: Obtain the appropriate form from the insurer, complete it accurately, and ensure all relevant sections are filled out.
    2. Copy of the Insurance Policy: Include a copy of the life insurance policy to support the claim.
    3. Death Certificate: Obtain an official death certificate from the appropriate authorities as proof of the policyholder’s passing.
    4. Obituary or Proof of Death: Provide an obituary notice or any other official document confirming the policyholder’s death.
    5. Identification: Include a valid driver’s license or a government-issued ID to establish your identity as the claimant.
  5. Submitting the Claim: Send the completed death claim form and all supporting documentation to the insurer as per their specified submission process, whether through online submission, mail, or any other designated method.

How is life insurance paid out?

Beneficiaries can choose between a lump sum or installment payments when receiving life insurance proceeds. The following options are available for those who prefer installment payments.

Lump-sum payout

The most common method is receiving the entire benefit amount as a single tax-free payment. This allows beneficiaries to cover immediate expenses resulting from the policyholder’s death.

Installment payout

If immediate funds are not required, beneficiaries can opt for installment payments using an annuity. An annuity policy enables beneficiaries to receive the death benefit in fixed installments over a specified period. The unused funds are invested and accrue interest at a predetermined rate. It’s important to note that any interest earned from the annuity is taxable, but the actual claim remains tax-free.

Retained asset account

With a retained asset account, the insurance company holds the funds in an interest-bearing account. Beneficiaries can withdraw funds from this account using checks as needed. It’s worth noting that any interest earned on the account is subjected to taxation.

Beneficiaries should carefully consider their financial needs and goals when deciding which payout suits their circumstances.

Alternatives to cashing out life insurance

If you prefer to cash out your life insurance policy, consider these alternatives that can provide the funds you need without jeopardizing your coverage.

Personal loan

Depending on your creditworthiness, you may qualify for a personal loan with a competitive interest rate, offering a viable option for accessing cash.

0% introductory APR credit card

Some credit cards provide an introductory period (usually 12 to 18 months) with no interest charges. Ensure you can repay the credit card balance before the introductory period ends to avoid accruing interest at the regular rate.

Home equity loan

Utilize a home equity loan to access cash by leveraging the equity in your home. Keep in mind that closing costs may range from 2% to 5% of the loan amount. Understand the potential risks involved, including the possibility of foreclosure if you fail to make loan payments.

Cash-out refinancing

If you meet the eligibility requirements, consider refinancing your mortgage for a higher amount than your current loan balance. You can use the difference between the two amounts as cash. This option allows you to access a substantial sum if needed.

Reverse mortgage

Specifically designed for homeowners aged 62 and above, reverse mortgages enable you to tap into your home’s equity. This provides tax-free income, and the amount you receive can be significant, especially if you have low mortgage debt or if your home’s value has appreciated since its purchase.

Before pursuing any of these alternatives, evaluating their terms, potential risks, and long-term implications is crucial to make an informed decision that aligns with your financial goals.


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Image Source: Canva


Can you cash out life insurance before death?

Yes, it is possible to cash out a life insurance policy before death. There are several options available for cashing out life insurance, including:

  1. Partial withdrawal: Withdrawing a portion of the cash value accumulated in the policy.
  2. Full surrender: Withdrawing all of the cash value and surrendering the policy.
  3. Policy loan: Borrowing against the cash value of the policy.
  4. Premium payment utilization: Using the cash value to pay future premiums.
  5. Living benefits: Taking advantage of any living benefits offered by the policy.

Should you cash in life insurance to pay a debt?

Using life insurance cash to pay off debts can be financially risky, especially if beneficiaries still rely on the policy’s death benefit. Cashing in a life insurance policy may be more suitable when nearing the end of life and needing funds for healthcare expenses or if the death benefits are no longer necessary.

How long does it take to build cash value on life insurance?

The timeframe for cash value accumulation varies depending on the insurance company and policy terms. In most cases, cash value begins to accumulate after the policyholder has made premium payments for a period ranging from two to five years.

What is the cash value of a $25,000 life insurance policy?

The cash value of a $25,000 life insurance policy is determined by factors such as the number of premium payments, the portion allocated towards cash value accumulation, and the duration for which the policyholder has made payments.

What does the cash surrender value of life insurance mean?

Cash surrender value refers to the cash available to the policyholder upon surrendering the life insurance policy. It represents the accumulated cash value (minus surrender fees and taxes) the policyholder can receive by terminating the policy.


The time to cash out a life insurance policy varies based on factors like policy size and complexity. Smaller policies with straightforward claims can take a few weeks to a few months. Larger policies or those with complexities may require several months or more. Delays can occur due to internal processes, incomplete documentation, or additional requirements. Promptly submitting all necessary documents and maintaining communication with the insurer can help expedite the process. It is recommended to consult the insurance company for specific timelines.

John Otero

John Otero

John Otero is an industry practitioner with more than 15 years of experience in the insurance industry. He has held various senior management roles both in the insurance companies and insurance brokers during this span of time. He began his insurance career in 2004 as an office assistant at an agency in her hometown of Duluth, MN. He got licensed as a producer while working at that agency and progressed to serve as an office manager. Working in the agency is how he fell in love with the industry. He saw firsthand the good that insurance consumers experienced by having the proper protection. John has diverse experience in corporate & consumer insurance services, across a range of vocations. His specialties include Major Corporate risk management and insurance programs, and Financial Lines He has been instrumental in making his firm as one of the leading organizations in the country in generating sustainable rapid growth of the company while maintaining service excellence to clients.

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