You may be able to get a refund, or a partial refund when you cancel your life insurance policy. Depending upon your type of policy, you may also get a payout of the cash value in your policy.
A life insurance policy is a wise investment, but it’s also a financial commitment. In exchange for providing your loved ones with financial protection when you pass away, you are required to pay your life insurance provider a pre-determined amount of money. This amount of money is known as a premium, and you must pay it every month in order for your life insurance to be effective. In other words, if you fail to pay it and you pass away, your coverage will end and the life insurance provider will deny your beneficiary’s claim.
With all of that said, the cost of life insurance can certainly add up, especially considering the fact that most policies are effective for a period of 30 years or more. If you have been paying your premiums on your policy but you decide to cancel your coverage, you may be wondering if you can get a refund. If you have purchased a return of premium term life insurance policy, purchasing a policy that offers permanent coverage, or by selling your policy, you can receive a refund. However, there are advantages and disadvantages to these options. Keep on reading to learn more.
How Can You Receive a Refund for a Term Life Insurance Policy?
If you have purchased a term life insurance policy with a return of premium, you can receive a refund for your premiums. This type of policy is just what the name suggests: when the term of the policy is up, your insurance provider will return your premiums to you.
Typically, you will receive the entire sum of the premiums you have paid, and that money will not be taxed; however, any fees or the cost of any additional riders that were added to the policy may not be returned. Also, the cost of this type of policy is usually higher than a standard term policy, and that’s understandable. Since your insurance provider will be returning the premiums when the term expires, they will charge more for premiums; typically, the cost is about 30 percent more than a standard term policy.
Most term life insurance policies do not have a return of premium component. If you have a traditional term life insurance policy, you won’t be refunded your premiums when the coverage period has ended.
What if you End Coverage Early?
There is one possible time when you get a small refund on a term life insurance policy, and it is if you have pre-paid for the coming year. If you cancel before the end of the period that you have pre-paid for, you may get a pro-rated refund. For instance, if you are at the start of the 6th month of the policy year, and you paid for the whole year, your life insurance company may be willing to refund you 50% of your annual premium. More often, having pre-paid, someone will choose to let their coverage extend until the end of the period the payment covered.
What About a Whole Life Insurance Policy?
If you are interested in receiving a refund for the premiums you have paid on your life insurance after you cancel the policy, you can also purchase a whole life, or permanent life insurance policy, with a cash value feature.
The cash value feature of a whole life insurance policy increases over the span of the policy. That means that you will receive money back if you cancel because of the growth rate of the policy. There are a few ways that you can take advantage of the cash value feature of a whole life insurance policy.
- You can take out a loan against the policy
- You can surrender your policy and your insurance provider will issue you a check
If your financial needs are complex, the cash value feature of a whole life insurance policy can be beneficial. However, it’s important to keep in mind that the cost of whole life insurance is typically much higher than other types of life insurance coverage. There are also guidelines and fees that apply to this type of policy, which can make it a bit confusing.
How Can You Get Money Back for Selling Your Life Insurance Policy?
If you are interested in receiving money back after you have paid the premiums on your life insurance, another option is to sell your policy; however, generally, this isn’t the best idea. When you sell a life insurance policy it is known as a viatical settlement. Firstly, your loved ones will no longer have financial protection. Secondly, it’s likely that you won’t receive the full value of the policy. Thirdly, it can be difficult to find someone to purchase your life insurance policy because the buyer is essentially purchasing the rights of the death benefit that the policy provides.
Is Getting Money Back on Your Life Insurance a Wise Idea?
Above, we discussed three ways in which you can get cashback on your life insurance policy after you paid your premiums. While these options might be tempting, generally, they aren’t recommended. You could end up having to pay more out of pocket, you may not receive the full amount of coverage, and your loved ones may not receive the financial protection that they need when you pass away. You also lose your coverage. It will probably be more expensive if you want to get the same amount of coverage later. If you have already canceled your policy, you can see what it will cost you to replace it here on Life Ant by getting a quote.