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- If you cancel or outlive your term life insurance policy, you don't get money back.
- However, if you have a "return of premium" rider and you outlive the policy, premiums will be refunded.
- If you have a convertible term life policy, you can sell it instead of canceling it.
If you cancel your term life insurance or you outlive your policy, you will not get money back unless you added a "return of premium" rider.
If you no longer need your term life insurance, instead of canceling it, you may be able to sell it if it is a convertible term life policy.
Can I get money back if I cancel or outlive my term life insurance?
Term life insurance has a timeframe of 10, 20, or 30 years.
If you have a term life insurance policy and cancel it, you lose all the premium payments you've paid, along with the death benefit. If you stop making payments, the policy lapses and is no longer valid. If you outlive the policy — meaning you haven't had a claim by the time it expires — you won't get any refund on the premiums you've paid.
Some insurers have term life insurance policies with a "return of premium" feature, which returns part or all of the money you've already paid if you haven't used the policy once your term ends.
'Return of premium' term life insurance
Return of premium is an optional add-on rider for term life insurance policies. It increases the cost of your insurance premium. It may not be available for all types of term life insurance or with all insurance providers.
If you have a term life policy with return of premium, you will pay increased premiums, but you will get your premiums returned if you outlive the policy.
Can I sell my term life insurance policy?
According to Lucas Siegel, CEO of Harbor Life Settlements, 85% of life insurance policies lapse — meaning the insured individuals outlive the policy or stop paying.
There are two ways you can sell your life insurance policy: (1) a viatical settlement; and (2) a life insurance settlement. They each have different requirements.
For a viatical settlement, the insured individual must have a terminal medical diagnosis. However, a life insurance settlement doesn't require a terminal diagnosis.
In each instance, the policy holder forfeits any rights and death benefit. Therefore, if you need to leave money to your family, this might not be a good option.
What is a viatical settlement?
A viatical settlement is when an insured individual with a terminal diagnosis is paid the death benefits from their life insurance policy.
Siegel gave the example of a cancer patient with a $1 million term life insurance policy who was struggling to afford medical treatment. If he simply canceled the insurance policy, he wouldn't have received any money. However, Harbor Life Settlements offered him $600,000 for his term life policy.
What is a life insurance settlement?
If you don't have a terminal diagnosis and you want to sell your term life insurance policy, you can use a life insurance settlement instead of canceling your policy. Siegel said people who have convertible term life insurance policies typically apply for a life insurance settlement.
A convertible term life policy can be converted to permanent life insurance with a cash value benefit in addition to the death benefit.
Consult an expert before selling your life insurance policy
If you're considering selling your term life insurance policy due to terminal illness or because you have a convertible term life policy, talk to your insurance agent or financial advisor to go over the process including any associated fees or taxes.
Once you sell your term life insurance, you lose all rights to the policy, specifically the death benefit. If your family needs the death benefit, this may not be the best option for you. However, if your family is financially comfortable on their own and don't need the death benefit, then it may work for you.
Consider your financial needs and goals. It's wise to consult an accountant, estates attorney, and financial advisor about your financial situation and goals to determine what is best for you and the tax implications. It's worth taking the time to find the best option for you, because once you've sold your policy, you lose that coverage.
Ronda Lee was formerly an associate editor for insurance at Personal Finance Insider covering life, auto, homeowners, and renters insurance for consumers. Before joining Business Insider, she was a contributing writer at HuffPost with featured articles in politics, education, style, black voices, and entrepreneurship. She was also a freelance writer for PolicyGenius. She worked as an attorney practicing insurance defense and commercial litigation.
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