Life Insurance

What to Know Before Cancelling a Life Insurance Policy

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Life insurance is a great investment for many people, but at some point, you may decide to cancel your policy. Maybe you've paid off all your debt, or you want to switch to a different provider. Whatever the reason, it’s important to know what happens when you cancel your life insurance, how to do it, and what potential penalties you could face.

Can you cancel a life insurance policy?

When you purchase a life insurance policy, you sign a contract and agree to pay the monthly premium in exchange for a guaranteed death benefit when you pass away. However, you are allowed to cancel your life insurance policy at any time and for any reason.

Canceling your life insurance policy is usually easy, but the actual process of canceling depends on the type of policy you have and how long you’ve had the policy. Also, keep in mind that some insurance companies charge a penalty when you terminate your policy, known as a surrender charge. Before you cancel, it’s a good idea to find out if there is a cancellation fee.

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How to cancel a life insurance policy

As a policyholder, you have the right to cancel a term life insurance or whole life insurance policy at any point. In most cases, however, canceling a term life policy is quicker and easier than canceling a whole life insurance policy. Here’s a closer look at the cancellation process for these types of life insurance.

Canceling term life insurance

If you want to cancel a term life insurance policy, you have two options. You can contact an agent or the insurance company and request to terminate the policy, or you can simply stop paying the premiums.

If you aren’t paying the premium each month, your insurance company will eventually cancel your policy for non-payment. Typically, you don’t have to pay a cancellation fee with a term life insurance policy, but you should check to see what your insurance company’s requirements are.

Canceling whole life insurance

Dropping whole life insurance can be a more complicated process because you must formally surrender the policy. You’ll need to contact an agent or the insurance company to start the whole life cancellation process, which will require some paperwork.

Usually, a surrender penalty is applied if you cancel whole life insurance within the first 10 years. If the policy is more than 10 years old, the surrender period has likely ended.

Do you get money back when canceling life insurance?

If you’re wondering if you can get money back from your life insurance, the answer is—maybe. When you cancel a life insurance policy, you could be entitled to money from your insurance company. However, potential compensation is based on the type of life insurance policy you have.

If you cancel a term life insurance policy, you will not receive any money. You stop paying the monthly premium and your coverage ends. 

However, if you cancel whole life insurance, you will receive the unused cash value from your policy, pending the balance. The catch is that you will receive the cash value minus any surrender charges, withdrawals, and fees associated with managing your policy, so you probably won’t receive all the cash value you’ve accumulated.

Regardless of the type of life insurance you have, the insurance company won’t compensate you for premiums paid into your policy. Like with any kind of insurance, you don’t get your money back if you never use the coverage or file a claim. So, even if you cancel halfway through the month, you most likely won’t get a partial refund.

When should you cancel life insurance?

Thinking about canceling your life insurance policy? There are a few things you should consider first before you start the process.

For example, when you cancel your policy, you can never get it back. To get life insurance again in the future, you would have to go through the initial application process. Plus, as you get older, life insurance premiums typically get more expensive.

However, there are valid reasons why you might decide you no longer need a life insurance policy. Here are some of the situations in which it might make sense to drop life insurance coverage:

  • You no longer have financial dependents: If your children have become adults, or you are divorced, you might decide that you no longer need life insurance to cover your dependents.
  • You want to buy a new policy: If you want to purchase a different type of life insurance, or if you’re unhappy with your provider, you can cancel your current policy and find something that works better for you.
  • You can’t afford the premiums: If you’re struggling to afford your life insurance premium, it’s ok to cancel. However, if you still have financial dependents, think about putting some of the money you were paying into a savings or retirement account for peace of mind.

If your life insurance policy is too expensive, you might also consider shopping around for a lower-cost policy. Ethos offers affordable term life policies and whole life policies with no medical exam required. You can get a quote online by answering a few health questions, and many applicants can get same-day coverage.

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