Can you cash out a life insurance policy in Canada?

Yes, but typically only permanent life insurance (whole life or universal life) with cash value. Term life has no cash value. You can access value through a withdrawal, a policy loan, or surrendering the policy.

What happens when you take money out of cash value life insurance?

Withdrawals usually reduce cash value and may reduce the death benefit. Policy loans accrue interest and reduce the net death benefit if unpaid. Surrender ends coverage and pays the surrender value (minus fees/loans). Some methods can trigger taxes depending on gains inside the policy.

Is cashing out life insurance taxable in Canada?

It can be. Withdrawals and surrender can create taxable income if there are gains over the policy’s adjusted cost base. Policy loans are generally not taxable when taken, but can become taxable if the policy is surrendered or lapses. Consider professional tax advice.

Can You Cash Out Life Insurance in Canada? Options: Withdraw, Loan, Surrender (2026)

“Life insurance can you cash it out?” In Canada, the key is your policy type. Term life has no cash value. Permanent policies (whole/universal) can build cash value that you may be able to access. This guide compares the three most common cash-out paths and what they do to your coverage.

Updated March 17, 2026

Option 1: Withdraw cash value

A withdrawal takes money out of the policy’s cash value. It can reduce the death benefit and may be taxable depending on the policy’s gains. This is most common with universal life, but can apply to whole life too.

Option 2: Policy loan

A policy loan borrows against cash value. Interest accrues, and if unpaid it reduces the net death benefit. See life insurance policy loan Canada.

Option 3: Surrender the policy

Surrender ends the policy and pays the surrender value (minus fees and any outstanding loan). Coverage ends. See surrender life insurance policy Canada.

Which option is best?

If you still want coverage (and especially if you need it for a spouse or estate), a loan can be preferable to surrendering — but only if you can manage interest. If you no longer need coverage and want maximum cash, surrender may be straightforward. For a deeper explainer, see can you cash out life insurance.

Tax note

Tax rules depend on gains and your policy’s adjusted cost base. Refer to the CRA for official information and confirm details with a tax professional.

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