Life doesn’t always follow the plans you had when you first purchased life insurance. Maybe your child is growing up and financially independent. Maybe your budget has been tightened. Or maybe you simply decided that your current policy doesn’t suit your needs. Whatever the reason, it may be in your mind that you will cancel your life insurance.
Normally you can cancel your policy at all times, but whether you want to leave with money in your hand or stop coverage depends on the type of policy you have and when you cancel. Bankrate insurance experts walk what they expect when they are thinking of canceling and what to expect when to get back your money and what to consider before making a final decision.
How to cancel your life insurance
Life insurance is intended to provide long-term peace of mind, but sometimes plans can change. That said, this process can look a little different depending on the type of policy you have and the duration you have had it.
Term life insurance tends to be easier to cancel than permanent insurance that can involve cash value and potential fees. Before you cancel, it is worth understanding what your policy entails and what steps you need to take to make the process smoother.
If you recently purchased a policy
Most life insurance comes with a free look period. This is a Grace window where you can change your mind and get a full refund. This is your chance to review the fine prints and make sure you still feel coverage is correct. No strings are attached.
What should you know about this:
- The period of free appearance usually lasts between 10 and 30 days, depending on the state and carrier.
- If you cancel during this period, you will receive a full refund of the premiums you paid.
- To cancel, please contact your insurance company by phone, email or email. Some carriers also allow online cancellations.
Once this window passes, cancellations may come with additional steps or financial implications, especially for permanent policies that may accumulate cash value or have an outstanding policy loan.
If you have term life insurance
Living for a period is the simplest form of life insurance, and its simplicity usually extends to policy cancellation. You are not dealing with cash value or surrender fees – only compensation that ends when you say so.
To cancel a term policy:
- Stop paying premiums: You can stop by paying manually. However, if you are registered with Autopay, you will need to reach out to your insurance company or bank to cancel your automated payments.
- Notify your insurance company: It is a good idea to give written notice, even if it is not necessary (email is sufficient, no letter is required). Many businesses have a cancellation form or an online cancellation option.
- Get it in writing: Always ask for written confirmation that your policy has been cancelled (again, email is sufficient). This will protect you from billing errors and disputes.
Cancelling lifetimes over a period is relatively simple, but it is worth checking with your provider to see if the optimal process and unused premiums will be refunded.
Alternatives to cancel terminology policy
It’s worth exploring your options before you pull the plug with life insurance for the period. Cancellation may seem like the simplest solution, but there are better ways to adjust coverage without leaving completely, depending on why you are considering it.
- Explore policy transformations: If your needs have changed and you are looking for lifelong coverage, check if your term policy includes conversion options. Many terminology policies come with built-in riders that allow you to switch to permanent policies such as lifelong or universal life without a new medical check-up. This can be a wise move if your health changes and you want to ensure long-term compensation.
- Reduce compensation: If you feel the premium is too expensive, you don’t necessarily have to cancel it completely. Ask your insurance company if you can lower the policy’s death benefits. This reduces costs while maintaining some coverage for the beneficiaries.
- Talk to your agent: Life insurance agents may be able to step-by-step instructions on other ways to adjust your terms, whether they are helping you shop for what fits your current budget and goals.
It takes a few minutes to explore these routes to help you maintain some of the protection you have already implemented, without starting from scratch or giving it completely.
If you have permanent life insurance
Permanent life insurance is often designed to last up to a coverage age range of 95-121, depending on your policy. But if you’re thinking of canceling, know that it’s not as simple as stopping your payment.
These policies typically build cash value over time. This may be accessible if you abandon the policy. However, that payout is often accompanied by a string. Early on, the surrender fee can significantly reduce or even eliminate the amount you receive. Additionally, if you receive or withdraw your loan, the available cash value will also be reduced in addition to those amounts.
The longer you own your policy, the more cash value you may be building. However, permanent life insurance is often part of a broader financial strategy, so cancelling it is not a light decision. Before you move forward, it is worth talking to your financial advisor to understand how abandoning your policy will affect your long-term goals.
Alternatives to cancel permanent policy
If you are considering canceling your permanent life insurance, consider an alternative first. In many cases, permanent policies come with options that may not require you to abandon your policy completely.
Pay premiums using cash value
One option is to use the accumulated cash value of the policy to cover premium payments or death costs. This depends on the type of policy. Depending on the amount of cash value you have built up, you can withdraw or borrow against it. This will help you keep your policy active, especially if you are facing financial challenges, without having to pay out of pocket.
However, it is important to understand the drawbacks of this approach. Opposing or withdrawing from your cash value can reduce the death benefits your beneficiaries receive. Additionally, if the loan is not repaid, the amounts and interest outstanding will be deducted from the policy’s death benefit. Over time, this could reduce the value of the policy or lapse if the cash value dies.
Before deciding to pay premiums using cash value, we recommend that you consult your financial advisor or insurance agent to fully understand how this will affect your insurance in the long run and explore other potential options that suit your needs.
Request an illustration within farming to your carrier reflect your plans before paying premiums using cash value. This will help you determine the impact on your policy.
Tax-free exchange
A tax-free exchange, officially known as the 1035 exchange, allows one life insurance to be removed and replaced with a new one without paying taxes. Tax-free exchanges avoid income tax by waiving life insurance and instead collecting money and depositing it in a personal account. If you are replacing your 1035, please follow the instructions from your insurance company. This way, you should inadvertently and incorrectly prevent cash value from being subject to income tax.
I’ll sell your policy
When selling a life insurance policy, there are usually two options. The next reconciliation or life settlement. These two choices usually depend on your health and financial needs.
- Viatical payment: In many cases, terminal illness and life expectancy of less than two years will involve selling life insurance to a third party. Buyers will offer lump sum payments that are less than the policy’s death benefit, but are usually more than the cash surrender value. This option can instantly provide financial relief for your healthcare, living expenses and other needs during difficult times. The buyer will then be liable to pay the premium and will receive full death benefit upon your passing.
- Reconciliation of Life: Life settlements, meanwhile, are considered by policyholders who are usually 65 years of age or older and are reasonably healthy, but no longer need policies or are able to afford premiums. In a life settlement, this policy is usually sold to a third party for more than the cash surrender value but less than the full death benefit. This option is usually for those who need to release cash for retirement or other financial goals.
It is important to note that the settlement allows third-party buyers to request your medical records to determine your estimated life expectancy. If your policy is on sale, they can reach out regularly to ask about your health.
Both options require you to work with a reputable broker or payments company. Because they handle the sale and offer offers. The amount you receive depends on a variety of factors, including age, health, and the size of your policy. Please note that it is important to consult with a financial advisor or insurance specialist before consulting with a financial advisor or insurance specialist, as life insurance sales can take months and may have tax consequences.
When should you cancel your life insurance?
There are several reasons why you want to cancel your life insurance. Below are some of the most common situations where it makes sense to stop paying.
- No more coverage: If your family grows up and your spouse or partner can manage financially independently without the benefits of death, life insurance may no longer need to be part of your financial portfolio.
- You are changing your investment strategy: You may have noticed that your permanent living policy investment options are not as good as another financial instrument for long-term savings. A financial advisor can help you determine whether pensions or mutual funds are better, for example. If you have a permanent life policy, you can cash it out and give nest eggs to invest in accounts that contain higher profits.
- Can’t afford a premium: If you are struggling to afford your life insurance premiums, you may consider cancelling your insurance. Before you do, consider the above options for those with financial struggles. You may be able to use one of these strategies to reduce your life insurance costs and meet other financial obligations to keep your policy in effect.
- You are switching insurance or insurance company: If you find a new policy that suits your needs, it is important to cancel your existing policy until the new policy is fully effective and follow the cancellation rules for your company’s life insurance policy. This ensures that you are not left without coverage during the transition period, protecting you and your loved ones from unexpected gaps in protection.
It is important to view life insurance as part of a broader financial strategy, rather than as an investment vehicle. If you want to use life insurance as a future investment method, it may make sense to reassess your needs and consider ways to achieve more effective financial goals, such as investing in savings or retirement accounts instead. In such cases, relocating the funds you would have spent on insurance premiums into a more growth-oriented investment could be a better option to secure your financial future.
Will you get back money when you cancel your life insurance?
When canceling a life insurance policy, your chances of regaining your money will depend on several factors, including the type of insurance you own and the timing of your cancellation. If you are wondering, can I cancel my life insurance policy and get my money back, here is a breakdown of what you can expect:
Free appearance period:
- Full refund: If you cancel your policy during the free appearance period that usually lasts between 10 and 30 days, you will receive a full refund of your premiums paid. This period provides a risk-free opportunity to reconsider your decision.
Life insurance:
- No cash value: Term life insurance does not accumulate cash value over time. Canceling your policy means you will not receive payment.
- Partial refund: However, if you cancel during the payment cycle, you may receive a small refund for the unused portion of the premium.
Permanent Life Insurance:
- Cash Value Payment: A permanent policy builds cash value over time. If you decide to cancel your entire life insurance or another permanent life product, you will be able to receive payments based on the cash surrender value.
- Suspension fee: Note that abandoning your policies often suffers from the sin of surrender, especially in the early days. These fees reduce the amount you receive.
- Unresolved loans: If you borrow against the policy, the outstanding loan will be deducted from the cash value before receiving payment.
- drawer: Withdrawal will permanently reduce your policy’s death benefits and cash surrender value.
Understanding these factors will help you make an informed decision about whether cancellation of your life insurance is the right choice for you.
