How to Cancel a Life Insurance Policy? Step-by-Step Guide

Financial challenges, coming from factors like rising inflation and job instability, can make it difficult to manage life insurance payments. While canceling your policy might seem like the only option, there are other choices worth thinking about if you’re facing financial struggles.

Depending on your insurance type and duration, here are possible other choices to cancellation:

Cash Value Utilization: If you have a whole life policy held for at least a ten years, piled up cash value and dividend payments could cover premiums.

Improved Health: A positive change in your health allows for a new medical exam, possibly qualifying you for lower premiums, especially if you’ve quit smoking or resolved past health issues.

Coverage Adjustment: Discuss with your insurer the possibility of reducing coverage to lower premiums temporarily. Some companies permit adjusting the death benefit, offering flexibility to match your financial situation. You can later revisit and increase coverage if your financial situation improves.

Before canceling, explore these options with your insurer to find a solution that matches up with your current financial circumstances.

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How To Canceling Life insurance Policy?

When it comes to canceling a life insurance policy, the initial phase during the free look period is the most flexible. Lasting anywhere from 10 to 30 days, this period allows policyholders to reevaluate their decision. Should you have second thoughts within this time frame, a straightforward call or written notice to your insurer guarantees a full refund of any premiums you’ve paid.

Post the free look period, the cancellation process becomes depending on the specific type of policy you hold. Understanding the details of your policy and its cancellation procedures becomes extremely important. Whether it’s a term life insurance policy or a whole life insurance plan, traveling safely through the steps to cancel effectively ensures clarity and ease in the process.

Canceling Term Life Insurance Policy?

The best part is cancelation of a term life policy is a piece of cake. You’ve got 4 options:

  1. Stop paying the monthly premiums, your term life policy will lapse! Let it, since it is unbearable for you now.
  2. Go to the official website of your insurer firm, fill out their cancellation form, and submit it.
  3. Call your insurer firm, talk to your insurance agent, and instruct him to cancel your term life policy right away.
  4. Write a formal cancellation letter for your term life policy to your insurer firm.

Can you receive a refund upon canceling life insurance?

The answer to whether you can get money back from canceling your life insurance policy is depending on the type of policy you hold. For term life insurance, which doesn’t have a cash value or investment feature, the possible refund is minimal. If you cancel the mid-payment cycle, you might receive a check for the unapplied premium, but it is much weaker than the policy’s death benefit.

On the other hand, permanent life policies, especially those with built-up equity after a ten years or more of payments, offer bigger possibilities. In this case, the insurer may provide an one time payment, deducting any fees or outstanding loan balances. While this amount might still be less than the death benefit, it represents an able to be touched return for your investment.

How Much Does Life Isurance Cost?

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How do I get rid of my permanent life insurance policy?

If you want to cancel your whole life or universal policy, it is not complicated either. Call the insurer carrier, and inform them that you can no longer afford to pay the monthly premiums. Direct them to cancel the life insurance policy politely.

With the universal or whole-life policies, you will only get your accrued Cash Value. If you bought the policy say 2 years ago, obviously the cash value would be way less than substantial. Do remember that for permanent life insurance policies, firms charge a “cancellation fee” which is deducted from your accumulated Cash Value account too.

There are 3 options that a carrier will offer you, choose wisely!

1. Forfeit future Death Benefit Payout

If anyone discontinues his monthly premium payments, automatically his whole life or universal policy lapses right away! This results in forfeiting the death benefit payout and any future coverage for his dependents.

2. Convert permanent policy to term life

The insurer will offer you to use your cash value money to buy a term life policy with him, instead. This will lower your monthly premiums significantly. But beware your beneficiaries are covered only within that term period.

3. Opt for a Reduced-Paid up Policy instead

Switch from the least expensive permanent policy to a lower Death Benefit payout policy. Your insurer will offer you alternative options with lesser payout and premiums. Convert your last policy to this one. This is the best-suited option, compared to the other two.

This lets you keep the permanent life insurance policy and it is purchased with the money in your Cash Value from the previous policy. The monthly premiums would be way cheaper onwards. After your death, your loved ones will get a full death benefit payout.

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Can I sell my Whole Life or Universal Life Insurance Policy instead?

Is it better to sell your permanent policies instead of letting them lapse, forfeit payout, or convert to less stable or beneficial ones?

The answer is quite simple, 

  1. If you’re more than 65 years old, 
  2. Have been diagnosed with a fatal illness,
  3. And on a permanent life policy with a face value equivalent of more than $100,000.

Sure! Sell it. 

Research online for brokers to interview many! Ask them as many questions as possible. Ask if they’re licensed in your state. Ask how much commission they’ll charge you for selling your policy. Ask them how long has it been since they’ve been in the market. Ask what is the structure for charging a commission.

Negotiate and get the best offer from them. They’ll bring many buyers from the market to you in a couple of months. Take your time and choose the highest buyer. 

Go ahead and Sell your whole life or universal policy. It may not give you as high an amount as your final Death Benefit Payout, but it will be better than what you can get from any other option. FYI selling your life insurance policy is technically called a “Life Settlement”.

 FAQ’s

Can I cancel my life insurance policy at any given point in time?

Yes, you can cancel your life insurance policy whenever you have to. 

What are the reasons why people cancel their life insurance policy?

Usually, the reasons include disability to continue premium payments, financial independence of beneficiaries, owning sufficient real estate assets, having paid off mortgage debts, or returning all loans.

How can I cancel my universal life insurance policy?

The steps are quite simple, call your insurance company and ask them to cancel your life insurance policy. If you try to let it lapse by not paying a premium, it will still have a 30-60 days grace period. So make sure that you call your company and tell them about your decision to cancel the life insurance policy.

What are the fees for canceling my life insurance policy?

For a term life insurance policy, you can cancel it for free. For a universal life policy or a whole life insurance policy, a certain cancellation fee is deducted from your accrued cash value.

Is it better to sell my insurance instead?

That depends, for instance only life insurance policies that are highly likely to get sold off are the ones with policyholders older than 65 years, the policy value must be $100,000 or more, and the policyholder should be formally diagnosed with a fatal illness.

When you sell your life insurance, you can get the most monetary value in exchange for transferring the ownership of your life insurance policy to the buyer.

If you die after selling it off to the new buyer, your beneficiaries will receive nothing after your death, instead, the new policy owner/ buyer will receive its Death Benefit payout.