Canceling Life Insurance Payments: What You Need To Know

If you're struggling to pay your life insurance premiums, you're not alone. Inflation and rising costs are putting pressure on many people to cut back on expenses. The good news is that you have options to consider before cancelling your policy. Depending on the type of policy you have, you may be able to take advantage of a grace period, use your policy's cash value to cover payments, reduce your coverage amount, or switch to a level benefit. If you're thinking about cancelling your life insurance policy altogether, it's important to understand the potential financial implications and explore alternative options first.

Cancelling during the free look period

During this time, you can review the policy document and assess whether it meets your needs. If you decide to cancel, contact your insurer to submit a cancellation request. You will likely need to provide certain documents, such as the policy contract, premium receipt, and a cancelled cheque.

It's important to note that the free look period only applies to life insurance policies and not to other types of insurance. Additionally, the rules for the free look period may differ depending on the state and the insurer. Therefore, it is crucial to review the specific details of your policy and understand the applicable rules before making any decisions.

The free look period is designed to give you peace of mind and flexibility when purchasing an insurance policy. It allows you to set up coverage with the confidence that you can cancel and receive a full refund if needed. While it is rare for customers to cancel during this period, it can be helpful if your financial situation changes or you find better coverage.

Cancelling a term life insurance policy

Term life insurance provides coverage for a specified period, such as 10, 20 or 30 years. It’s a popular choice for those seeking affordable coverage with straightforward benefits. If you decide to cancel your term life insurance, the process is usually pretty simple.

One of the most effective ways to cancel is by stopping your premium payments. If you have automatic payments set up, you may need to call the insurance company to end these transfers. Many policyholders set up automatic payments through ACH (automated clearing house) transfers or electronic fund transfers (EFT). By stopping your premium payments, you will trigger a grace period on your insurance policy, which normally lasts 30 days. During this time, you can make up missed payments and keep your policy active. If you let the grace period expire without making any more payments, your insurance coverage will end.

Alternatively, you can call or send a letter to your insurance company notifying them of the cancellation. Most insurers can cancel your policy over the phone or at least start the process for you. If you decide to call your insurance provider, have your policy number handy so an agent can pull up your policy and guide you through the steps. You can also check your provider’s website, as some insurers offer a way to submit your notice online.

Other Options if You Have a Term Policy:

If you’re considering cancelling your term life insurance policy, it could be worth exploring other options before making a final decision. If you’re thinking about cancelling your term policy because you decided you need a more permanent solution, check the terms of your policy. Many term policies automatically include a conversion rider, which allows you to switch to a permanent policy without undergoing a new medical exam. This can be a valuable option if you want lifelong coverage and the ability to accumulate cash value within your policy.

If you’re thinking of cancelling your policy because the premiums have become too expensive, it might be beneficial to contact your insurance agent. They may be able to help you reduce the policy’s face amount, which can lower your premium payments and make the policy more affordable while still providing some level of coverage.

Exploring these options can help you maintain the protection you need without giving up your life insurance entirely.

When to Cancel Your Life Insurance Policy:

There are a number of reasons why you might want to cancel your life insurance policy. Here are some of the most common situations when it could make sense to stop paying for it:

• You no longer need coverage: If your family is grown and your spouse or partner is financially independent without needing a death benefit, life insurance may no longer be necessary.
• You are changing your investment strategy: You may have realised that the investment options of your permanent life policy are not as good as another financial vehicle for long-term savings. A financial advisor can help you determine if you would be better off with an annuity or mutual fund, for example.
• You cannot afford the premiums: If you are struggling to afford your life insurance premium, you may think about cancelling your policy. Before you do, consider the options laid out above for those with financial struggles. You may be able to keep the policy in force by using one of those strategies to lower the cost of life insurance to meet your other financial obligations.
• You are switching policies or insurance companies: If you’ve found a new policy that better suits your needs, it’s important not to cancel your existing policy until the new one is in force. This ensures you aren’t left without coverage during the transition period, protecting you and your loved ones from unexpected gaps in protection.

It’s important to view life insurance as part of your broader financial strategy rather than as an investment vehicle. If you were hoping to use life insurance as a way to invest for the future, it might make sense to reassess your need for life insurance and instead look into more effective ways to meet your financial goals, such as investing in savings or retirement accounts. In such cases, reallocating the funds you would have spent on premiums into more growth-oriented investments could be a better option for securing your financial future.

Cancelling a permanent life insurance policy

Understand the Implications

Before initiating the cancellation process, it's crucial to recognize the financial impact of ending your permanent life insurance policy. Permanent life insurance policies, such as whole life or universal life insurance, often include a cash value component. This means that your policy has likely accumulated cash value over time, and cancelling it will result in losing this value. Additionally, there may be surrender charges or fees associated with cancelling your policy, especially if you haven't held it for a long period. These fees can reduce the cash value you receive upon cancellation. It's important to review your policy documents or consult with a financial advisor to fully understand the financial implications of cancellation.

Contact Your Insurance Company

The next step is to get in touch with your insurance company. Cancelling a permanent life insurance policy typically requires a conversation with a representative from your insurance provider. You can contact them via phone or email to express your intention to cancel your policy. They will guide you through the specific steps and requirements for cancellation. It's important to ask about any potential fees, charges, or penalties associated with ending your policy.

Explore Alternative Options

Before finalizing the cancellation, consider exploring alternative options provided by your insurance company. For instance, you may be able to reduce your coverage amount or convert your permanent policy to a term policy. Reducing your coverage will lower your premiums while still providing some level of protection. Converting to a term policy will eliminate the cash value component, but it may be a more affordable option. Discuss these alternatives with your insurance company to determine the best course of action for your specific situation.

Provide Written Notice or Complete Cancellation Forms

Most insurance companies require written confirmation of your intention to cancel your policy. You may need to submit a written notice or fill out specific cancellation forms provided by your insurance company. This step is crucial to ensure a smooth and timely cancellation process. Make sure to follow the instructions provided by your insurance company to avoid any delays or additional fees.

Understand the Refund Process

When you cancel your permanent life insurance policy, you may be entitled to a refund of your premiums minus any applicable fees or charges. The insurance company will typically send you a check for the policy's cash value, which is the amount you have paid into the policy minus any deductions. It's important to note that this refund amount may be less than the total premiums paid due to administrative costs and cancellation fees. The refund process can vary depending on the insurance company, so be sure to clarify the timeline and amount you can expect to receive.

Remember, cancelling a permanent life insurance policy is a significant decision that should not be taken lightly. Carefully consider your options, understand the financial implications, and follow the necessary steps provided by your insurance company to ensure a smooth cancellation process.

Grace periods

If you die during the grace period, your beneficiary will still receive the death benefit, but the insurance company will deduct the amount owed from the payout. If you don't make your payment within the grace period, your policy will lapse, and you will lose your coverage. However, you may be able to apply for reinstatement, although you will have to pay the overdue bill plus interest and may be subject to additional requirements such as a medical exam.

It's important to understand the grace period policy of your insurance company and the specific terms and conditions of your policy. Some companies may offer a longer grace period, and it's crucial to know how much time you have to make a late payment.

To avoid missing a payment and having your policy lapse, you can set up reminders, automatic payments, or designate a third party to receive late-payment notices.

Reinstating a lapsed policy

If you've missed a payment, it's best to contact your insurer to pay what you owe by phone or log on to your account to make a payment online. If you can't afford to pay the insurance premiums now, discuss your payment options with your insurer.

If your policy has lapsed, you may be able to reinstate it, depending on how long ago it lapsed. Many companies will give you a 15- to 30-day buffer after a policy lapses to reinstate it without any complications. You'll likely just have to pay the premiums you missed, plus any interest.

Insurers typically allow three to five years to reinstate a policy after it lapses. However, they have certain requirements for reinstatement. At a minimum, you'll have to submit a reinstatement application, fill out a questionnaire about your health, and attest that your health condition hasn't changed since your policy was approved.

Your insurer may also check your medical records from your doctor and require you to take a life insurance medical exam. If your health has changed for the worse, the insurance company might not reinstate your policy.

If the insurer agrees to reinstate the policy, you will have to pay all of the premiums owed, plus any interest on past-due premiums. A common interest rate is 6%.

The benefit of reinstating an existing policy rather than applying for a new one is that you'll likely pay less. If your health hasn't changed, your insurer will honour the original pricing on your policy.

How to avoid a lapse

• Set up automatic payments
• Reduce the risk of forgetting to make a payment or not receiving statements in the mail by having your premium deducted automatically.
• Remove any riders you don't need to make your premium more affordable.
• Take advantage of flexible premiums if you have a universal life insurance policy.
• Use the cash value in a permanent life insurance policy to cover premiums temporarily.
• Switch from annual to monthly premium payments.

Frequently asked questions