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How to Cancel Your Life Insurance Policy
Sometimes it makes sense to cancel your life insurance. You may believe you no longer need the coverage so what is the point of paying those monthly premiums? But before your life insurance policy is canceled consider a few things that might either change your mind or provide you with some valuable alternatives.
Canceling your life insurance policy
Life is constantly changing and there are several changes in your life that give you reason to re-evaluate your life insurance needs.
- Your income has decreased over time.
- You no longer have any dependents.
- You have paid off debts.
- You’re looking to move over to a cheaper life insurance policy.
Whatever the case may be, there are a few options available when it comes to cancelling your life insurance policy.
Surrendering your life insurance policy
Think of surrendering your policy as a way to fully cancel your life insurance policy. You are allowed to do this at any point. Though if it is canceled your beneficiaries would not receive any benefits of the policy after you pass away.
To start the process of surrendering your policy you need to contact the life insurance company directly. From here, you will decide your last payment. Then it can get a little confusing due to potential tax consequences and the age of the policy.
Ultimately, not everybody gets the same options when canceling their policy and a huge deciding factor will be how long the policy has been in force. If you want to know the specific requirements or penalties that might occur if you surrender your policy, you should speak directly with your life insurance agent. If you don't have an agent, call the insurance company that issued your policy directly and ask them about surrendering your policy.
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Whole or other cash value life insurance policy surrender
This section is going to go over surrendering a policy for any life insurance policy that has a cash value. This won't include term life insurance.
Whole life insurance and other policies that have a cash value are more extensive and it is harder to just ‘end’. In this case, you may be offered some options by the company.
For example, some people use the cash value to pay the premiums as the death benefit decreases. The benefit amount that would be received by the beneficiary is the original death benefit payout minus the amount that was deducted to pay the premiums. This option is typically used if a payment is missed and there is enough cash value to make up the difference. If you just need to skip a few premium payments, you should speak with your agent about this option.
Others keep the death benefit but choose to use the cash value to buy term life insurance, which will ultimately expire at the end of the set term.
And the last option is to take the cash value in the policy and cancel the life insurance policy altogether.
It is important to note that just not paying the policy premiums on a cash value policy would not qualify as surrendering a policy. This could actually lead to more complications, specifically with taxes on your life insurance.
Sell your life insurance policy
If you have decided to cancel your life insurance policy because you want to withdraw all the cash value, you don’t have to surrender the entire contract.
Not only can you reduce your death benefit and withdraw from the cash value, you can use the cash value as security on a life insurance loan, or even sell the policy to a company that buys policies.
In recent years, there has been a rise in the amount of companies looking to buy life insurance policies. Why? Because they buy it for less than the death benefit, (but more than your cash value), before receiving the death benefit after you pass away.
These life settlement companies look to buy cash value policies going to waste and make a decent profit at the end.
Viatical settlements are normally an option only available to senior life insurance policyowners because the company will want to keep their risk to a minimum. Typically, they buy all policies where owners have a life expectancy of five to ten years.
Convert your life insurance policy
If you have convertible term life insurance you can always convert your policy to permanent coverage.
Depending on the company you are with will determine the type of permanent life insurance you will be eligible for.
While there isn't typically a built in option for you to convert a cash value policy to a term policy (which has no cash value) you may still have options to lower your monthly premium. Your best bet is to speak with your life insurance agent about your options.
As you can see, there are options available rather than choosing to cancel your life insurance. If you are currently on the fence about what to do, give one of our licensed life insurance agents a call. We can help you make an informed decision before you cancel the policy and lose what may be a valuable asset.