If you find yourself needing to cancel your life insurance policy, it’s a relatively easy process. However, it’s important to evaluate your current scenario properly to ensure you are making the right decision. Let’s take a look at some things to consider before you decide to cancel your life insurance policy.
Cancelling a life insurance policy is a personal decision that must be made by the individual based on their unique needs. But, with that said, if you are struggling to decide whether to cancel your policy, here are a few of the most common reasons by consumers cancel their life insurance policies.Â
Or, you’ve decided to allocate the monthly premiums into a different kind of investment. Either way, you may decide paying the premium of a life insurance policy simply isn’t worth it for you anymore.
You may have had a serious health issue that encouraged you to purchase a life insurance policy. But once you are no longer ill with that particular health issue, you might not need the insurance anymore.
Maybe you paid off your mortgage, or any other debt that inspired you to purchase life insurance has been paid off.
It’s possible that another insurance provider offered you a better rate on a policy for a variety of reasons. For example, perhaps you stopped smoking cigarettes and became more appealing to another insurance provider.
Looking for cheaper insurance? Try purchasing life insurance online.
Many people buy life insurance to ensure their children are taken care of in the event of their death, especially if they are carrying a lot of debt. However, if your children have grown up and secured full-time jobs, you may not feel the same sense of obligation in having life insurance for your dependents.
Technically, there are no rules that dictate when you can and cannot cancel a life insurance policy. However, the time you choose to cancel your policy will be a factor in how much money you are able to get back.
The best time to cancel life insurance is immediately after you buy it. This time is referred to as the free-look period, also known as the cooling-off period. If you regret purchasing a policy, you might be able to cancel the policy without penalty if you do it right away. Usually, the free look period is 10-30 days after you purchase a policy. Cancelling during this time, you can usually receive a 100% refund on the premiums you’re already paid. However, it’s important to double-check your policy, as each one is different and may have a different free look period length.
It is possible to cancel your policy after the free look period, and it may be worth it for you to do so. Just ensure you are well informed about any financial penalties that come with cancelling your policy too late.
Another good time to cancel your policy is if you have a return of premium policy (ROP). Although this refund might not include any administrative fees, you can receive most of your monthly premium payments back. When purchasing a life insurance policy, you should check the contract to see if the provider offers an ROP to protect your money if you need to cancel the policy early.
Thinking of switching life insurance providers? Check out our review on PolicyMe and PolicyAdvisor.
Term life insurance is a very common type of life insurance policy. Offering temporary coverage, term life insurance pays a one-time lump sum to your beneficiary when you die within the term of the policy. With low premiums, it is a popular type of life insurance policy. Cancelling term life insurance is straightforward. To do so, you can:
It’s important to include your full name, contact information, policy information, and the date you want to cancel your coverage. Ensure your information is accurate to avoid any issues down the line, and cancel any automatic payments that you may have arranged with your bank. Finally, make sure to follow up with your insurer if you don’t hear back from them after a few days.
Want to switch your home insurance provider? Check out how you can cancel your home insurance.
Permanent life insurance, or whole life insurance, is a bit more tricky to cancel than term life insurance. However, it is still possible. Although the terms of cancellation will depend on a few factors, including how long you have had the policy, there are three general ways you can cancel your permanent life insurance policy.
Permanent life insurance policies have a cash surrender value. The surrender period applies to the first few years of your policy, during which cancellation of the policy results in fees and penalties. Keep in mind that while a life insurance death benefit isn’t taxable, any cash you obtain from cancelling your permanent policy is taxable.
Call your insurer to find out if a reduced paid-up option is available to you. This means you can stop paying your monthly payments while still keeping a reduced benefit (less money upon your death) on your policy.
Cancelling your policy can be as easy as simply ceasing to make monthly payments. If you stop paying your premium, many insurers will cash out your policy automatically. Other insurers will let your policy expire, after which you might be able to reinstate it. Although you will need to pay premiums in this case, it might cost less than purchasing a new policy altogether.
As discussed above, there are permanent and term life insurance policies. Permanent policies allow you to invest cash every month, growing your investment over time. If you cancel this policy, you might be able to collect some of the cash that you invested, which is known as the cash surrender value (CSV). The amount of money that you would collect depends on how long you had the policy. If you cancel after a long time of having the policy, you will receive the cash surrender value, excluding any fees, charges or loans. However, if you cancel your policy too soon after taking it out, you may not have collected enough cash value to receive it back.
If cancelling your life insurance policy will cost too much money to be worth it, there are other options that you can consider.
Perhaps you purchased a policy that covered every scenario you could think of. If you find the monthly premiums to be too high, it might be worth considering changing your coverage. Talk to your insurer to explore changing your coverage, as it could help lower your monthly premiums.
Life insurance policies are usually more expensive if you have health issues. However, if you overcome a health issue, it’s a good time to visit the doctor. Weight loss, cessation of smoking, or other drastic lifestyle changes could help you qualify for lower monthly premiums. Generally, you have to have had your policy for at least a year before exploring this option.
If you have held your life insurance policy for many years, you might be able to sell your policy to someone else. This can help you at least recover the cash value of your policy. Talk to your insurer to ensure there are no provincial or company sale restrictions, fees, or tax implications.
If you have invested a significant amount of money into your life insurance policy, you may be able to cover your monthly premiums with the cash value. Reach out to your policy provider to explore paying your premiums with the cash value of the policy.
Cancelling your life insurance policy is a decision that shouldn’t be made lightly. It’s important to evaluate all of your options before deciding how to proceed in cancelling your policy.
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Chrissy is a Toronto-based communications advisor. With an English degree from the University of Toronto and editing courses under her belt from Ryerson University, she has continued her lifelong passion for writing and editing. In addition to working for Loans Canada on a variety of financial topics, Chrissy has a few years of resume writing and editing under her belt, and takes great pleasure in helping people find work that fits with their experience and passions. When she isn't working, you can find her practicing yoga, hanging out with her dog, reading up on financial and real estate news, or planning her next trip abroad.
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