How to Cash Out a Life Insurance Policy

Walt Disney, Ray Kroc, and James Cash Penney all famously cashed out life insurance policies to start their companies or to keep them afloat during tough times. If you own one of these policies, usually called permanent, whole or universal life insurance, you can cash it out in a relatively simple process.

Request a cash-out application from your insurance carrier. If you don’t have the original policy in your possession, find out if you can file an affidavit of lost policy when you submit the application, or if you must get a replacement policy. There will be several forms to complete and sign; at least one will require notarization. If you live in a community property state, your spouse must sign the forms as well.

Other forms generally accompany a cash-out application. For instance, one form lists many of the adverse consequences of cashing out your life insurance; you’ll sign that to acknowledge that you’re aware of those consequences. Another form notes that the cash-out amount may be reduced by the amount of any policy loans or premiums outstanding, as well as any cash-out fees the insurance company imposes. Companies have their own unique rules and procedures, and each may require additional forms to be completed.

Once you’ve completed and signed the paperwork and notarized those forms that require it, take copies of everything and mail the originals, together with the insurance policy or affidavit of lost policy, to the insurance company’s home office or the mailing address noted on the application. Once these forms are submitted to your insurance company, it may several weeks for the company to process your request.

Cashing out an insurance policy cancels it, after which no death benefit is payable. This might pose a significant problem for your beneficiaries if you were to pass away unexpectedly. In addition, if you intend to replace the policy at some later point, the monthly premium cost will be greater unless the replacement policy has a significantly lower face amount. Medical and other issues that have arisen since the original policy was first issued may make it difficult or impossible to secure new life insurance at any cost.

There are two ways to access the cash value of your policy without cancelling it. The first, permitted by some companies, is a withdrawal from the cash value, which also reduces the face amount. The other, which most companies allow, is a policy loan. This is taken out from the insurance company itself, doesn’t require any credit check, and usually involves very favorable repayment terms.