Canceling Bankers Life Insurance: A Step-By-Step Guide

Life insurance is a crucial financial safety net for many, but circumstances can change, leading to a desire to cancel policies. Cancelling life insurance can be a complex process, especially if it's a permanent policy. This is a guide on how to cancel Bankers Life Insurance, a company that is currently in court-ordered liquidation as of November 30, 2024. Understanding the steps involved in cancelling life insurance and the potential financial implications is essential for those seeking to terminate their coverage.

Cancelling during the free look period

If you've just purchased a Bankers Life Insurance policy, you're likely still within the "free look" period. This period typically lasts 10 to 30 days, depending on your state, and allows you to cancel your policy without any financial penalty. Cancelling during the free look period means you won't be out of pocket; you will receive a full refund of any premiums you've paid.

The free look period is a critical time to carefully review the details of your policy to ensure it will meet your current and future needs. If you decide to cancel, you must contact Bankers Life Insurance by phone or in writing to inform them of your decision.

After this period ends, cancelling the policy might involve more steps, especially if you have a permanent policy, where you might need to consider the impact on the cash value and any surrender charges. Over time, surrender fees decrease, but it's important to be aware that cancelling a policy early may mean the cash value is not as high as expected.

If you're unsure about your policy, it's worth speaking to your insurance agent. They may be able to help you find a solution that better meets your needs, such as a policy upgrade or change.

Cancelling a term life insurance policy

Understand the "Free Look" Period:

If you've recently purchased the policy, you're likely within the "free look" period, which typically lasts 10 to 30 days, depending on your state. During this period, you can cancel the policy without any financial penalty and receive a full refund of any premiums paid. This is a good time to review the policy details and ensure it meets your needs.

Contact Your Insurance Company:

If you decide to cancel within the "free look" period, contact your insurance company by phone or in writing to inform them of your decision. You can refer to the Bankers Life website for contact information and online account management options.

Stop Premium Payments:

If you've decided to cancel outside of the "free look" period, one effective way to cancel your term life insurance policy is to stop paying the premiums. If you have automatic payments set up, call your insurance company to end these transfers.

Confirm the Cancellation:

It's a good idea to call your insurance agent or carrier directly to confirm the cancellation and ensure there are no further obligations on your part. Most insurers have forms or online options to finalize the cancellation process.

Keep a Record:

Maintain a written record of the cancellation and confirmation that your term life policy has been cancelled. This will help you avoid any potential lapses in communication or misunderstandings.

Explore Other Options:

Before cancelling your policy, consider exploring alternative options. If you're thinking of cancelling due to financial constraints, you may be able to reduce the policy's face amount, which can lower your premium payments while still providing some level of coverage. Additionally, many term policies include a conversion rider that allows you to switch to a permanent policy without a new medical exam.

Cancelling a permanent life insurance policy

Understanding the Cancellation Process

Before initiating the cancellation, it's important to understand the implications and potential costs associated with terminating your permanent life insurance policy. Cancelling a permanent policy, also known as "surrendering" it, may result in financial penalties and taxes. There may be surrender charges, which can significantly reduce the cash value you receive, especially if the policy is relatively new. These fees typically decrease over time. Additionally, if you have any outstanding policy loans, the surrender value will be reduced by the unpaid loan balance and accrued interest. Withdrawals made from the policy will also permanently reduce the cash value. Therefore, it's crucial to carefully review your policy's guidelines and consider the financial consequences before proceeding with the cancellation.

Contact Your Insurance Company

Provide Written Notice or Complete a Cancellation Form

Most insurers require some form of written confirmation for the cancellation. You may need to provide a written notice or complete a cancellation form. Following the correct procedure is essential to avoid unnecessary delays or additional fees. Check your insurer's website or contact their customer support team to understand their specific requirements.

Understand the Financial Implications

Upon cancellation of your permanent life insurance policy, you will receive a check for the policy's cash value, which is the amount you've paid minus any applicable fees or charges. This amount is typically sent within 30 days of cancellation. Keep in mind that the refund may be less than the total premiums paid due to administrative costs and cancellation fees. Additionally, you may need to pay taxes on any interest earned from the cash value of the policy.

Explore Alternatives to Cancellation

Before making a final decision, it's worth considering alternatives to cancellation. One option is to sell your life insurance policy through a life settlement, which can provide a lump sum of cash, often exceeding the policy's cash value. This money can be used to pay off debts, fund education, or cover other expenses. Additionally, if you have a permanent policy, you may be able to use the accumulated cash value to cover your premium payments, depending on the policy type. However, it's important to understand that withdrawing from or borrowing against the cash value may reduce the death benefit for your beneficiaries.

Reasons to cancel your life insurance policy

There are several reasons why you may 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:

Financial changes or constraints

If you can't afford your premiums, cancelling your life insurance policy may be your only option. Before giving up your policy, consider cutting down on non-essential spending. It may also be helpful to evaluate your insurance portfolio. You may be overpaying for insurance in one area, such as your home or auto policy, causing financial strain in the life insurance department.

Policy no longer meets your needs

You may no longer need life insurance if your goals and financial situation have shifted since you bought your policy. Perhaps you bought a policy to replace lost income, but your family is no longer dependent on your income. Maybe you got a policy to pay off a mortgage, but you've paid it off earlier than expected. Regardless of the reason, you may not need life insurance anymore. Before cancelling your policy, consider anyone who may still depend on you for financial support, such as a non-income-earning spouse or a lifelong adult dependent.

Finding a better-suited policy

If you can afford higher premiums, you may decide to switch from a term policy to a permanent policy. This type of policy has a cash value component, which allows you to increase its value over time. You can use your earnings to increase your retirement fund, save for long-term care costs, or build an inheritance for your children. However, life insurance policies tend to yield subpar returns compared to other investments, so carrying a policy may not be worth the cost if you have no financial obligations.

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. If you have a permanent life policy, cashing it in could give you a nest egg to invest in a higher-interest-bearing account.

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 fully 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.

What happens if you stop paying premiums?

If you stop paying your premiums, your policy will lapse and your coverage will end. However, the consequences of non-payment depend on the type of policy and the terms and conditions set by your insurance provider.

If you have a term life insurance policy, your coverage will likely lapse if you miss a payment. On the other hand, if you have permanent life insurance, your policy may not automatically lapse. You may be able to cash out the policy, agree to a reduced death benefit, or convert to term coverage. Some providers also offer a non-forfeiture option, which allows you to stop paying altogether but with a smaller death benefit.

Most insurance companies offer a grace period, usually 30 days, during which you can bring your policy current and avoid a lapse in coverage. If you die during the grace period, your beneficiary will still receive the death benefit, minus any money owed. If you ignore your premium payment during the grace period, your policy will lapse, and you may have to go through medical underwriting and pay higher premiums to reinstate your coverage.

To avoid a lapse in coverage, consider setting up automatic payments or paying your premium annually, as this reduces the risk of late payment.

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