Canceling Group Universal Life Insurance: A Step-By-Step Guide

Universal life insurance is a type of permanent life insurance that offers the ability to adjust your premium payment amounts and death benefit amount. It's more expensive than term life insurance but cheaper than whole life insurance. If you have a universal life insurance policy and are considering cancelling it, you can do so at any time. However, you won't get back any premiums you paid for the policy, and you may have to pay surrender fees.

Cancelling during the free look period

To cancel during the free look period, you should contact your insurance company within the allotted time frame. You can do this by calling or writing to them, and they will guide you through the cancellation process. It's important to note that the exact procedure for cancelling a policy may vary from insurer to insurer, so be sure to review their official website or contact them directly for specific instructions.

The free look period is an essential safeguard for policyholders, providing an opportunity to make informed decisions about their insurance coverage. It allows individuals to carefully analyse the policy document, ensuring they fully understand its implications and how it aligns with their needs. Additionally, it offers a chance to compare the policy with other available options in the market.

If you decide to cancel your group universal life insurance policy during the free look period, be mindful that your refund may have some reasonable deductions. These deductions typically cover costs incurred by the insurance provider, such as stamp duty charges.

Cancelling a term life insurance policy

• Contact your insurance company. Get in touch with your insurance agent to receive clear instructions on how to cancel your term life insurance policy. They should be able to guide you through the process.
• Stop making premium payments. Access your online account and remove your payment information. If you make in-person or mail payments, you can simply skip future payments.
• Provide verbal or written confirmation. You can call, write, or complete an online form to confirm your cancellation request.
• Keep a record. It is a good idea to keep a written record of the cancellation and confirmation that your term life policy has been cancelled to avoid any potential lapses in communication.

It is important to note that if you cancel a term life insurance policy, you will not receive any monetary return. Term life insurance does not accumulate cash value over time, so cancelling the policy means you won't get a payout. However, if you cancel in the middle of your payment cycle, you might get a small refund for any unused portion of your premium.

Additionally, if you cancel during the "free look" period, which typically lasts 10 to 30 days from purchasing the policy, you can receive a full refund of any premiums paid without any penalties. This period gives you the flexibility to reconsider your decision without financial consequences.

Cancelling a whole life insurance policy

Contact Your Insurance Company

Get in touch with your insurance provider to understand the specific rules and guidelines regarding cancellation. Each policy has slightly different rules, so it's important to start with a call to your insurer to understand your options.

Cash Out and Surrender Your Policy

You can choose to surrender your policy and receive the cash value, which is the interest earned through your policy. However, there will be surrender fees and penalties, and the amount you receive will depend on factors such as the length of your coverage period and your insurance company's rules.

Stop Making Payments

If you simply stop making premium payments, your insurance company may naturally let your policy lapse. However, if you have universal life insurance, your insurer will use your cash value to pay your premiums, reducing any amount you get back.

Consider a Reduced Paid-Up Option

If you want to minimise fees and penalties, you can opt for a reduced paid-up option. With this option, you stop paying premiums in exchange for a lower death benefit. This option allows you to maintain some level of insurance protection while alleviating your financial burden.

Explore Other Alternatives

Before cancelling your whole life insurance policy, consider other alternatives such as lowering your coverage, converting to a different plan, or selling your policy to a third-party buyer. These options can provide flexibility and help you avoid complete cancellation.

Surrendering a permanent life insurance policy

Reasons for Surrendering a Permanent Life Insurance Policy

People may choose to surrender their life insurance policy for a number of reasons:

• Adult children are no longer financially dependent.
• A spouse or beneficiary has passed away.
• Financial instability, making it difficult to pay premiums.
• Better investment opportunities with higher returns.
• Needing cash for unexpected expenses, such as healthcare bills, retirement living expenses, or long-term care costs.

Process of Surrendering a Permanent Life Insurance Policy

The process of surrendering a life insurance policy typically involves the following steps:

• Contact your insurance company to initiate the surrender process.
• Submit the required documentation, such as a surrender request form.
• Receive the cash surrender value, usually via check or electronic transfer.
• Obtain confirmation of policy termination from your insurance provider.

Consequences of Surrendering a Permanent Life Insurance Policy

There are several consequences to consider before surrendering your life insurance policy:

• Loss of life insurance coverage: Your beneficiaries will no longer receive the death benefit if you pass away.
• Financial loss: The cash surrender value may be lower than the total premiums paid, resulting in a net loss.
• Surrender fees: There may be fees associated with surrendering the policy, which will reduce the amount of cash you receive.
• Tax implications: If you have an outstanding loan from the policy, you may face tax consequences upon surrendering it.

Alternatives to Surrendering a Permanent Life Insurance Policy

Instead of surrendering your life insurance policy, you may consider the following alternatives:

• Lower your coverage or convert to a different plan: Most insurance companies allow you to adjust your coverage or switch to a different plan with a lower death benefit.
• Tax-free 1035 exchange: Transfer your existing insurance funds to a new policy or a different type of settlement, such as an annuity, without paying additional taxes.
• Pause payments but keep your coverage: For universal life insurance, you may be able to stop paying premiums temporarily while maintaining your coverage. The accrued cash value will be used to pay the premiums during this period.
• Sell your life insurance policy: You can sell your policy to a third-party buyer in exchange for a cash payout, which is often higher than the cash surrender value. This option is known as a life settlement.

Cancelling a universal life insurance policy

Understand the financial implications

Universal life insurance policies can accumulate cash value over time. If you cancel your policy, you may receive a payout based on the cash surrender value, which is the cash value minus any surrender fees and penalties. However, it's important to note that surrender fees can be high, especially in the early years of the policy, and they will reduce the amount of money you receive. Additionally, if you have any outstanding policy loans, the surrender value will be reduced by the unpaid loan balance and accrued interest.

Contact your insurance company

Get in touch with your insurance agent or carrier to inform them of your decision to cancel your policy. They will be able to provide you with clear directions on how to proceed and finalize the cancellation process. Most insurers have forms or online options to make it quick and convenient.

Stop making premium payments

Once you have confirmed the cancellation with your insurance company, you can stop sending in premium payments. If you have automatic payments set up, you will need to end these transfers by calling the insurance company.

Complete any necessary paperwork

Your insurance company may require you to fill out a cancellation form or surrender form to finalize the cancellation of your universal life insurance policy. Make sure to provide any supporting documentation that may be necessary.

Explore alternative options

Before cancelling your universal life insurance policy, it's worth considering alternative options, especially if you still need some form of life insurance coverage. Here are a few alternatives to explore:

• Reduced paid-up option: If you want to minimize fees and penalties, you can choose to stop paying premiums and receive a decreased death benefit. This option can help alleviate financial burdens while still providing some level of coverage.
• Use cash value to pay premiums: If you have accumulated cash value in your policy, you may be able to use it to cover your premium payments or mortality costs. However, keep in mind that this will reduce the death benefit your beneficiaries will receive.
• Tax-free exchange: You can surrender your life insurance policy and roll over the cash value into a new policy or a different type of settlement, such as an annuity, without paying income taxes.
• Sell your policy: You may be able to sell your life insurance policy to a third-party buyer in exchange for a cash payout. This option is known as a life settlement and is typically considered by those over the age of 65 who no longer need the policy or can't afford the premiums.

Remember, it's important to carefully evaluate your specific circumstances and consult with financial advisors or insurance professionals before making any decisions regarding your life insurance policy.

Frequently asked questions