While life insurance is intended to be held throughout your entire life, there may be times when it makes the most sense to cancel the policy. Unfortunately, canceling your life insurance policy can be tricky. Your insurance company doesn’t want you to cancel, so they make the process very difficult to do in hopes that you will think twice about it. Here’s how to go about it, as well as reasons why you might consider canceling your life insurance policy.
Steps to Cancel Your Life Insurance Policy
The steps you take for canceling your insurance policy are going to be different depending on if you have a whole life insurance policy or a term life insurance policy. Since a term life insurance policy requires less commitment, it is much easier to cancel than a whole life insurance policy. To cancel a term life insurance policy, all you have to do is stop paying the premiums. There will be a short grace period and then the company will just cancel it. However, if you’d like to get your cancellation in writing, you can send them a letter with your name and policy number, as well as the date you would like the cancellation to be effective.
If you have a whole life insurance policy, canceling is going to be a bit more difficult. You’ll need to get your insurer on the phone and talk about your options since every whole life insurance policy is slightly different. Ideally, you should cash out your policy, so that at least you get some of the money you’ve put into it back. However, your options for this may be limited, depending on how long you have held the policy. If you are absolutely sure you want to cancel and have considered all of the alternatives, be prepared to stand your ground before making the phone call because the insurance agent will likely try to talk you out of it.
Things to Consider Before Canceling Your Life Insurance Policy
There are a variety of things to think about before canceling your life insurance policy, particularly if you have had it for a long time. If you are canceling one life insurance policy to switch to another, it is very important that you hold off on canceling the first one until the second one is confirmed and your rates have been approved by the insurer. Although it’s unlikely, you don’t want to be without coverage in the event of an accident.
Of course, if you are canceling your policy without getting a replacement, it’s important to note that you won’t get your premiums back, and you will be left without coverage for you and your family. Additionally, if you decide you would like to reapply for life insurance, there is a good chance your rates will go up in the future. Rates tend to go up as we age, so this is not something to take lightly.
If you are canceling due to financial reasons, there are a few strategies you can use to lower the monthly financial burden without completely getting rid of coverage. If you have term life insurance, most insurance companies will allow you to lower the amount of coverage that you have, which in turn would lower the monthly premium that you pay. If it’s been a long time since you set up the policy, you can also try making healthier lifestyle choices, like stopping smoking and eating healthier, and then asking for a new medical exam. If your health has improved significantly, there’s a good chance you will qualify for lower rates.
If you’re signing up for life insurance for the first time and aren’t completely committed to it, look for a policy that has a free look period. Most states mandate that you can cancel your policy within a certain period of time with no penalties, usually just a few weeks. If you cancel during this time, you can get your premiums refunded.
There are a few other important things to think about if you want to cancel a whole life insurance policy. You’ve already put so much money into the policy that would be a significant benefit to your family if you passed, so it’s worth looking into ways you can keep your coverage. For example, if you have a cash benefit accumulated, you may be able to pay your premiums out of that cash benefit for a while and retain your coverage. You should also note that if you cancel in the first few years of the policy, otherwise known as the ‘surrender period’, you are unlikely to get the cash value of your policy back at all and may pay steep penalties.
Reasons to Cancel Your Life Insurance Policy
There are many legitimate reasons why you might want to cancel your life insurance policy. These include:
- Switching to a new policy that is a better fit for you. Insurance rates are always changing, and if you have term life insurance, it’s worth shopping around every few years just to see if you can get a significantly better deal. Of course, you will want to weigh the pros and cons of this change long term before switching.
- You took out life insurance to cover a very specific financial burden that is no longer there. For example, many people take out life insurance to cover a debt that they’ve taken on in case they pass away before it is paid off. If you pay the debt off, you no longer need the coverage and can opt to cancel it.
- You can’t afford the premiums. While it’s unfortunate, there are times when we have to prioritize other expenses over life insurance. If this happens to you, it is worth talking to an insurance agent to see if you have any other options that would prevent you from losing your coverage.
Canceling your policy is a serious decision, and it’s important to weigh all the pros and cons carefully before doing so. However, if you’re sure about the decision, you have several options for cancellation.