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Life insurance is usually purchased to secure the financial future of an individual's family. However, there are instances where one might feel their policy no longer fulfils their primary needs. In such cases, cancelling or surrendering the policy may be the best option. Cancelling a term life insurance policy is fairly simple: one can simply stop paying the premiums and let the policy lapse. Cancelling a permanent life insurance policy, on the other hand, can be more complex, as it often involves accumulated cash value and potential surrender charges.
Characteristics | Values |
---|---|
How to cancel | Stop paying premiums, contact insurance company by phone or in writing, fill out a surrender request form |
When to cancel | No longer need coverage, changing investment strategy, cannot afford premiums, switching policies or companies |
Getting money back | Depends on type of policy and timing of cancellation; term life insurance will not accumulate cash value over time, permanent life insurance may receive a cash payout upon cancellation |
Alternatives to cancelling | Reduced paid-up option, use policy's cash value to pay premiums, lower coverage amount, ask for a new medical exam |
What You'll Learn
Cancelling within the free-look period
During the free-look period, you can cancel your life insurance policy without any financial penalty. This is usually 10 to 30 days, depending on your state and insurer. With Tata AIA, the free-look period is typically 15 to 30 days. Cancelling within this window entitles you to a full refund.
If you've just purchased your life insurance policy, you're likely still within the free-look period. Reviewing the details of your policy during this time is crucial to ensure it aligns with your needs. Should you decide to cancel, be sure to notify your insurance company of your decision by phone or in writing. Taking this step will ensure you receive a full refund of any premiums paid.
The free-look period offers a risk-free opportunity to reconsider your decision to purchase life insurance. It is a window of time, typically lasting 10 to 30 days, during which you can cancel your policy without incurring any financial penalties. This period allows you to carefully review the terms and conditions of your policy to ensure it meets your current and future needs. Should you decide to cancel during this time, be sure to contact your insurance company by phone or in writing to initiate the cancellation process and receive a full refund of any premiums paid.
The free-look period is an important feature of a life insurance policy, offering a risk-free window to reconsider your decision. This period typically lasts for 10 to 30 days, depending on your location and insurer. For example, Tata AIA offers a free-look period of 15 to 30 days. If you change your mind about your policy during this time, you can cancel it without penalty and receive a full refund.
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Surrendering a life insurance policy
In general, insurers will only pay out the surrender value if you have held your policy for a certain number of years, typically between three and five years. According to the IRDAI, life insurance companies cannot charge surrender fees if you surrender your policy after five years. However, if you surrender your policy during the early years, surrender fees can significantly reduce or even eliminate the cash value you receive.
When you surrender a permanent life insurance policy, you may also need to pay back any outstanding policy loans, which will be deducted from your surrender value. Additionally, if you have made any withdrawals from your policy, this will permanently reduce the available cash surrender value.
Before surrendering your life insurance policy, it is important to understand the potential financial implications and ensure you have explored all other options.
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Cancelling a term life insurance policy
Evaluate your reasons for cancellation:
Consider how important life insurance coverage is to you and your beneficiaries. Ask yourself if you still need life insurance and if cancelling the policy is the best option for your circumstances.
Contact your insurance provider:
If you decide that you no longer require life insurance coverage, get in touch with your insurance company and inform them of your decision to terminate the policy. You may be required to fill out a cancellation form, so be prepared for that.
Understand the financial implications:
If you have a term life insurance policy, you can simply stop paying the premiums, and the policy will lapse. However, keep in mind that you will not be able to recover any of the premiums you have already paid.
Consider alternatives:
Before cancelling your term life insurance policy, explore alternative options. You could consider reducing your life insurance coverage, which may lower your premiums. Contact your insurance provider to discuss this option and find out if it is available to you.
Weigh the benefits of keeping the policy:
Think about your beneficiaries and your overall estate plan. Consider if your life insurance policy can be repurposed to benefit a charity or another organisation.
Remember, cancelling a term life insurance policy in Japan is a relatively simple process, but it is important to carefully evaluate your reasons and consider alternatives before making a final decision.
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Alternatives to cancelling life insurance
Cancelling your life insurance policy may not be the best option if you have dependents who rely on your income for financial support. Even if that isn't the case, you still lose money by paying premiums and not using your policy. Here are some alternatives to cancelling your life insurance policy:
Lower your coverage amount
If you're struggling to afford your insurance premiums, consider lowering your coverage amount. While a reduced amount may not be enough to subsidize your dependents' needs if you pass away, some coverage is better than none. Most insurers allow you to request a decrease at least once during your coverage period.
Use your cash value to cover premiums
You can use the cash value you've earned on your permanent policy to cover your premiums until you can afford them. Just be sure your cash value doesn't go below the minimum required amount (usually equal to your premium amount and any other policy fees), so your policy doesn't lapse.
Retake your medical exam
If your health or lifestyle (e.g. you quit smoking or avoided a high-risk hobby) has improved at least a year since your last medical exam, ask about retaking your medical exam. You may qualify for a lower-risk class and more affordable premiums.
Sell your policy
There are two ways to sell your life insurance policy: a viatical settlement and a life insurance settlement. A viatical settlement is when an insured individual with a terminal diagnosis is paid the death benefits from their life insurance policy. A life insurance settlement is when an individual without a terminal diagnosis sells their term life insurance policy to a third-party provider.
Switch to a reduced paid-up option for your insurance
This option allows you to stop paying premiums in exchange for a lower death benefit. The reduced benefit is based on your already-paid premiums, and coverage lasts for life.
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When to cancel your life insurance policy
Cancelling your life insurance policy is a big decision that should not be taken lightly. Here are some situations when it could make sense to cancel your life insurance policy:
You no longer need coverage
If your family is grown and financially independent, and your spouse or partner can manage without your income, then you may no longer need life insurance as part of your financial portfolio.
You are changing your investment strategy
You may have realized that the investment options of your permanent life policy are not as good as another financial vehicle for long-term savings. In this case, it may be beneficial to cash in your policy and invest the money in a higher-interest-bearing account, such as an annuity or mutual fund.
You cannot afford the premiums
If you are struggling to afford your life insurance premiums, cancelling your policy may seem like a viable option. However, before making a decision, consider alternative solutions such as reducing your coverage amount or using the cash value of your policy to cover your premiums.
You are switching policies or insurance companies
If you've found a new policy that better suits your needs, it's important to ensure that your existing policy is properly cancelled and that there are no gaps in coverage during the transition period. Do not cancel your current policy until the new one is fully in force.
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Frequently asked questions
Contact your insurance company by phone or in writing to inform them of your decision.
This depends on the type of policy you hold. If you cancel a term life policy, you will be refunded any premium payments. For permanent or whole-life policies, you may receive a surrender benefit if you have held your policy for more than 3 years.
If you have found a better deal or can no longer afford the premiums, it may be best to cancel your current policy.