How to Cancel Your Life Insurance Policy

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Most of the time, when someone is trying to plan for the future, they research or even buy a life insurance policy. With the help of a life insurance policy, anyone is able to get financial protection over some type of time period. That timeframe is frequently set to correspond with the period while their loved ones and children are younger. Or, for others, the time frame might be while their children are in their college years, to make sure they don’t run into financial issues during that period of time.

Many times, when people have signed up for a life insurance policy, over time, their situation changes . That’s why most life insurance policies can be cancelled, even if the policy owner changes their mind soon after buying the life insurance policy in the first place. Additionally, in some cases, and with some types of insurance policies, the policyholder might even receive a surrender value or a sum of money.

What Should I Know Before Canceling My Life Insurance Policy?

As a policy owner, if you’ve already decided that you’re no longer in need of an insurance policy, there are a few things you need to understand beforehand. With this information, you’ll be able to make the best decision for yourself and your loved ones.

The first thing you should know is that if you have a term life insurance policy, you have limited options for cancellation. If you cancel a term life insurance policy, you don’t really get anything in return because you’ll be simply letting your insurance policy lapse by not paying the life insurance premiums, for example.

Instead what you should be doing is looking to sell your term life insurance policy through what’s called a life settlement process.That way, you’ll receive a lump sum of money. When you get a life settlement, a life settlement company will find a buyer for your policy, who will be making all future premium payments and receiving any payouts from the life insurance company.

Another option is to sell a piece of your insurance policy to someone who will make a piece of the premium payments and receive a piece of the death benefits.

However, things are a bit more complicated with whole life insurance policies, as they tend to accrue a cash value over a period of time.

You have the nonforfeiture option, where you simply stop paying the insurance premiums but still have insurance coverage. But with this option, you impact the value of your policy. If you decide to choose this option, it’s best to discuss it with a financial advisor as well as with your insurer beforehand.

And finally, if you manage to accumulate many years of the policy, there are some different cancellation options with various insurers, as well as different structures for interest rates and surrender fees.

Which type of life insurance policy generates immediate cash value

Why Should I Cancel My Life Insurance Policy?

Most life insurance policies tend to cover long periods of time, anywhere from one decade to two decades or more. However, that’s a long time, over which many things can change for the policy owner, and that’s why many cancel their policies.

There are several reasons why people to cancel their term life insurance policies:

  • If your beneficiaries don’t need any financial support from you anymore

  • If your beneficiaries have passed away

  • If you start working for a company that already provides life insurance coverage

  • If you have changed your mind about having life insurance

  • If you want to get a new policy from a different insurer

  • If you want to stop making the premium payments because you’re not able to do that anymore

  • If you’ve received a large inheritance

  • If you’re had a big shift in your income

How Canceling Your Life insurance Policy Works

There are two main types of life insurance policies – term life insurance policies and permanent life insurance policies. There are different details and features for either insurance option when you decide on cancelling one.  However, you should know that some of the best types of policies have a free look period when you get to try out a policy and cancel it without paying anything for 30 days.

Canceling a Term Life Insurance Policy

Term life insurance policies don’t tend to build up a significant cash value over a period of time, and if you decide to cancel this type of policy, most of the time you don’t really get anything. The only way you can get more money back is if you cancel in the middle of a payment period. In that case, you’ll get a portion of the monthly payment back.

The best option is to sell it instead of trying to cancel term life insurance policies. This is because with a life settlement, you can work with a company that can guide you in the process of receiving some sort of payout.

In case you’ve already decided and you simply want to cancel it, it’s best to consult with your insurance company. An insurance agent will tell you everything you need to know about the procedure, which usually involves filling out a cancelation form and sending it to the insurer.  You can also effectively cancel a policy through non-payment of premiums.  

Canceling a Whole Life Insurance Policy

Permanent life insurance policies, including whole life insurance policies, universal life insurance policies, and variable life insurance policies all fall under the category of permanent insurance policies, because they provide lifetime coverage and accumulate a cash value  since part of the monthly premium payments accumulate. 

For a whole life policy, you can may a decent lump sum of money upfront, or receive an annuity depending on the contract and the cash accumulation. You can also trigger the nonforfeiture clause when you simply stop making the monthly premiums which give you additional options, but you should check with your insurer and look over your contract to learn more.

With this option you get to take the cash surrender value of your policy from your insurance company. To cancel it, all you have to do is write a letter of cancellation to your insurer. You should include your policy number, your name and personal information, the date for the start of the cancellation, a short explanation of your decision. In the letter, also  inform the insurer that you want to receive the cash value in return.

Don’t lose your lifelong investment. Discover your policy’s value today.

Frequently Asked Questions About Canceling Life Insurance Policies

Can an insurance company cancel your policy?

There are very rare cases where the insurance company itself decides to cancel someone's life insurance policy. Missing the due date of premium payments outside the grace period of your policy is the most common reason.

Can you get some money back when you cancel a life insurance policy?

That largely depends on the type of policy you have, especially if there's a built-up sum for the policy’s cash value.

Don’t lose your lifelong investment. Discover your policy’s value today.