Canceling Thrivent's Permanent Life Insurance: A Step-By-Step Guide

Permanent life insurance is a type of insurance that provides coverage for your entire life, as long as the premiums are paid and the contract retains its value. It is often used by people with someone who will always be financially dependent on them, such as a child with special needs. It can also be useful if you are worried about your ability to get insured later on. If you are considering cancelling your permanent life insurance policy with Thrivent, it is important to review the benefits you have and weigh their value. Cancelling your policy may result in losing tax-deferred growth and potential investment growth, and you may face approval hurdles and higher rates if you decide to re-apply for insurance in the future.

Reasons to keep permanent life insurance

Permanent life insurance is a good option for those who want to ensure their loved ones are financially protected no matter when they die. It is also a good option for those who want to build cash value and leave a financial legacy to their heirs. Here are some reasons to keep permanent life insurance:

Lifelong coverage:

Permanent life insurance provides coverage for your entire life, unlike term life insurance, which only covers you for a specified period. With permanent life insurance, your loved ones will receive a death benefit payout regardless of when you pass away, as long as the policy is active and premiums are paid.

Accumulation of cash value:

Permanent life insurance policies have a savings or investment component that allows the policy to accumulate cash value over time. This cash value can be accessed through loans or withdrawals, providing financial flexibility while you are alive.

Tax advantages:

The cash value growth in a permanent life insurance policy is tax-deferred, meaning you don't pay taxes on the gains until you withdraw the money. Additionally, the death benefit paid to beneficiaries is generally tax-free, providing a significant financial advantage.

Locked-in premiums:

With permanent life insurance, you can lock in your premiums when you purchase the policy. This means that your premium will not increase as you age or if your health status changes, unlike term life insurance, where premiums can increase substantially with each renewal.

Financial security for dependents:

If you have people financially dependent on you, such as a disabled child, permanent life insurance can provide them with financial security beyond the length of a typical term policy. It ensures that your dependents will have financial support even if something happens to you.

No medical underwriting:

If you cancel your permanent life insurance and decide later that you want coverage again, you will have to go through medical underwriting again, which may result in higher rates or approval hurdles, especially if your health has deteriorated. Keeping your existing policy ensures that you have already proven your insurability.

How to reduce coverage

Reducing the coverage amount on your permanent life insurance policy is possible, but it depends on your insurance company. Here are the steps and considerations to help you reduce your coverage:

• Review your current needs: Assess your current financial obligations and future plans. Consider your family situation, income, debts, and future goals. Ask yourself if the new coverage amount will fulfill your needs in the future.
• Compare options: Look for alternative policies that fit your current situation. Research different types of life insurance, such as term life insurance or other permanent life insurance options like whole life or universal life insurance.
• Consult with your insurer: Discuss the possibility of adjusting your coverage or switching to a different type of policy. Find out if your insurer allows policy modifications, including decreasing the coverage amount. Understand any limitations and restrictions that may apply.
• Consider long-term costs: Evaluate how changes might affect premiums and overall cost. Reducing your coverage will likely result in a lower premium, but the rate reduction may not be proportional to the coverage reduction.
• Understand the financial aspects: Familiarize yourself with the financial calculations related to decreasing term insurance, such as the remaining coverage based on the policy's schedule and the initial face value.
• Weigh the benefits and downsides: While reducing your coverage can lower your monthly premium, it may also result in less coverage for your family. Carefully consider the potential costs and implications of starting a new policy or reducing your existing coverage.
• Seek expert advice: Consult a qualified financial advisor or a local Thrivent financial advisor to help you make an informed decision. They can provide personalized guidance based on your individual circumstances and goals.

How to reduce premiums

Choose the right type of policy

Term life insurance is generally more affordable than whole life insurance because it provides coverage for a set term (for example, 10, 20, or 30 years) and doesn't accumulate cash value. If your primary goal is to protect your family during your working years, a term policy might be the most cost-effective choice.

Determine the appropriate coverage amount

Avoid over-insuring yourself. Calculate the amount your family would require to cover immediate expenses, outstanding debts, and future financial needs, and use that as a guideline for your policy's coverage amount. By accurately assessing your needs, you can lower your coverage amount and reduce your premiums while ensuring your family is taken care of.

Maintain a healthy lifestyle

Your health and lifestyle choices play a significant role in determining your life insurance premiums. By maintaining a healthy lifestyle, including regular exercise, a balanced diet, and avoiding tobacco products, you may qualify for lower rates.

Bundle insurance policies

Many insurance companies offer discounts to customers who bundle multiple policies, such as home and auto insurance, with their life insurance. Combining policies with a single insurer can result in significant cost savings.

Pay annually instead of monthly

Most insurance providers offer different payment options for your premiums. While monthly payments may be more convenient, they often come with higher administrative fees that can increase the cost of your policy. By paying your premiums annually, you may be able to save on these extra costs and potentially reduce your overall policy expenses.

Consider a laddering approach

Instead of purchasing a single large life insurance policy, consider buying multiple policies with different term lengths and coverage amounts to align with your evolving financial needs. This approach can be more cost-effective and provide consistent coverage.

Review and update your policy regularly

Life circumstances change over time. As you pay off debts, accumulate savings, or experience other life changes, you may find that you need less coverage. Regularly reviewing and updating your policy can help you avoid overpaying for coverage you no longer require.

How to convert or exchange a contract

If you have term coverage, you may be able to convert it to permanent life insurance. This could provide some long-term advantages:

• Retain your coverage for life
• Build a savings balance with cash value
• Secure a premium rate that will last

If you already have permanent insurance, you can look into exchanging it for another type that better fits your needs. For example, you may have a whole life contract but need the flexibility of a universal life policy.

• Find your conversion deadline: Plan ahead. If you know a term-to-perm conversion is something you may want to pursue in the future, pay attention to the dates allowed in your contract. Buy a convertible term life insurance policy from the start. If you don’t know the conversion deadline, read your contract documents or ask your financial advisor.
• Choose the type of permanent life insurance you want. Three types of permanent life insurance that are commonly available are whole, universal, or variable universal life insurance.
• Calculate the new policy cost: There is usually no direct cost to convert term life insurance to a permanent policy. However, premium payments will likely be higher. Consider a lower coverage amount on the new policy if you’re interested in keeping premium amounts lower.
• Convert: Decide whether to do a partial or total conversion of your existing policy. Usually, a financial advisor will step in to help with paperwork. You can expect to review and sign a new contract.

How to avoid common pitfalls

Before cancelling your permanent life insurance, it's important to be aware of some common pitfalls and alternative options to consider.

Firstly, review the benefits of your policy and weigh their value. Cancelling your insurance means your family may no longer have the protection of a financial safety net if something happens to you. They may struggle to cover funeral costs, mortgage payments, and education expenses.

Additionally, if you decide to re-apply for life insurance in the future, you will have to go through medical underwriting again, which may result in higher rates and more approval hurdles.

Another pitfall to consider is the potential tax implications. If your policy's cash surrender value exceeds your cost basis, you may have a taxable event, and you will miss out on future tax-deferred growth.

Instead of cancelling your policy, you may want to consider the following alternatives:

• Reduce your coverage: Lowering the amount of your death benefit can decrease your premium while still maintaining some coverage. However, if you decide you need more coverage in the future, you will need to undergo underwriting again, which may result in higher rates.
• Reduce your premiums: Some types of life insurance, such as universal life insurance, offer adjustable premiums. Consult with a financial advisor before making any changes to understand the impact on your contract.
• Convert or exchange your contract: If you have term coverage, you may be able to convert it to permanent life insurance, locking in a premium rate and building a savings balance with cash value. If you already have permanent insurance, you can explore exchanging it for another type that better suits your needs without a taxable event through a 1035 exchange.

Remember, making changes to your life insurance coverage can have lasting effects, so it's essential to seek personalized guidance from a qualified financial advisor who can help you navigate these pitfalls and make informed decisions.

Frequently asked questions