How to Cancel Your Life Insurance Policy

How to Cancel Your Life Insurance Policy

When making long-term plans for their lives in the future, many people tend to look into life insurance policies. These policies can provide them with various types of protection over a period of time. This period of time usually centers around the years when the policyholder has younger children, or alternatively, to ensure their loved ones have financial support in case anything happens during their children’s college years.

However, there are plenty of times when someone has signed up for a life insurance policy, but when years down the road, their situation or needs end up changing. Fortunately, in those cases, as well as when someone changes their mind soon after signing up for a life insurance policy, they’re able to cancel it and even receive a refund.

Why Cancel a Life Insurance Policy?

When someone purchases a term life insurance policy, the policies tend to last anywhere from one decade or to two, and even longer, but a lot of things can change in that time period. That’s why canceling a life insurance policy is quite common. eople’s lives and situations change.

As a policy owner, you can cancel your term life insurance policy if you started working for an employer that now provides you with life insurance coverage, or if you want to purchase a new policy from a different life insurance company. You can also cancel your current policy if you’ve changed your mind about the policy itself, or if you’re no longer able to make the premium payments.

Additionally, you can cancel your life insurance policy if the beneficiaries you named in the contract no longer need financial support or have passed away. Canceling your life insurance policy also makes sense in other situations, such as if you’ve recently had a big change in your income, or even if you’ve received a big inheritance.

Things to Know Before You Cancel Your Life Insurance Policy

If you’ve already decided that it’s time for you to cancel your life insurance policy, there are several things you should know so you can get the best value when you do so.

For starters, there are limited cancelation options if you have a term life insurance policy. In these cases, cancelling is also referred to as surrendering your life insurance policy. Usually, you don’t get anything in return aside from not making the monthly payments anymore. The policy just lapses.

If you have a term life insurance policy, the best option for you would be to look into selling it instead. Through a life insurance settlement process, a broker can help you sell it to an investor who can then take over all your life insurance premiums and future payouts from the insurer. In this case, you’ll receive an up-front payment for that exchange.

You also have the option of selling a part of your life insurance policy, where the buyer ends up making a portion of the premium payments in exchange for a part of the death benefits.

On the other hand, with whole life insurance policies, things are a bit more complicated because these types of policies can accumulate a big cash value over time. 

 You also have a nonforfeiture option, where you can stop making the premium payments while you still have the coverage. In this case, the cash value of the policy is impacted, and it’s best to consult with your insurer if you want to go with this option.

Finally, depending on the years of the policy you have, there are different cancelation options as well as different clauses and rules in contracts that explain what will happen if you cancel your policy. You should also find out if your life insurance policy has any surrender fees, and invest in the best interest rate when you get your money.

Canceling Your Life Insurance Policy

Most life insurance policies fall into one of two types – permanent life insurance policies, or term life insurance policies. Each type has different features and details on what happens if you cancel your policy. You should know that the best type of policies tend to offer a free look period, which lasts for about a month, where you get to review a life insurance policy, and if you’re not happy with it, to cancel it without paying anything.

Cancelling Whole Life Insurance Policies

Whole life insurance policies are similar to variable life insurance policies, universal life insurance policies, and permanent life insurance policies. This is because all of these types of policies accumulate substantial cash value over a period of time, as the monthly premium payments are similar to investments. And that means you’ll be able to get something substantial in return when you cancel whole life insurance policies.

If you simply stop making the premium payments, you’ll likely trigger a nonforfeiture clause, which opens you to several options for your insurance policy as the policyholder. The first thing you should do is take the cash surrender value from your insurer and close the insurance policy. You might also get the option of keeping either a portion of or the entire benefit.

All you need to do to cancel it is write a letter of cancellation of your insurance policy to your insurer, where you include your name, address, policy number, date of cancelation. You also need a brief explanation on why you’ve made the decision, request to have the cash value returned to you, and sign the letter.

Canceling Term Life Insurance Policies

With term life insurance, your policy might build up some value over a long period of time, but that’s usually an insignificant sum. If you decide to surrender your insurance policy early, in some cases you’ll be able to get a small payment, but most of the time, you don’t really get anything in return when you cancel.

That’s precisely why you shouldn’t rush to cancel term life insurance policies, even if you’ve been planning to , because the better option in this case is to sell it instead. You can work with a life settlement company that can guide you through the life settlement process and get a better result than cancelling would .

However, if you do plan on canceling it, you should call up your insurer and explain why you’re looking to cancel it, and then the insurance provider will tell you the cancelation procedure. Then all you need to do is fill out the cancelation form and send it to the insurer.

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Canceling a Life Insurance Policy FAQ

Can I get my money back when I cancel my life insurance policy?

That depends on the life insurance policy you bought. For example, with term life insurance policies, it doesn’t really happen unless you cancel it in the middle of a payment cycle. And if you have a whole life insurance policy with equity in it, you can receive a lump sum from the insurance company for the policy's cash value.

Can my insurer cancel my policy?

There are very specific conditions, but essentially, there are some situations when an insurance agent can cancel a life insurance policy. One of the main reasons for that is if you stop making the premium payments before the due date, especially during the initial grace period.

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