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If you no longer want or need coverage, you can cancel your life insurance policy. But here’s the bad news: you most likely won’t see any of the money you paid in premiums.
What's in this guide?
Can I cancel my life insurance policy?
You can typically cancel your life insurance policy at any time — either by letting your insurer know or no longer paying premiums.
Will I get my money back?
In most cases, you won’t receive a refund on the premiums you paid. There are two exceptions:
- You cancelled during the “free look period.” When you purchase a policy, insurers are legally required to give you a cooling off period. This is known as the free look period, and it lasts 10 to 30 days depending on the state you live in. If you cancel your policy during this time, you’ll be reimbursed for any premiums you paid.
- You have a return of premium policy or rider. Some insurers offer return of premium (ROP) riders or standalone policies. If you decide to cancel your coverage, you’ll receive 100% of the premiums you paid — plus the fee you paid to add the rider to your policy (if applicable). The refund might not include the cost of any administrative fees or additional riders.
How do I cancel my life insurance policy?
The process varies between policies, but these are the general guidelines.
Canceling term life insurance
There are two ways to cancel your term life insurance policy:
- Stop paying premiums. If you fail to pay your premium by the end of the grace period — which is usually 30 days from your premium’s due date — your insurer will terminate your policy.
- Contact your insurer. You can call your insurance company, write a letter or fill out a form provided by your insurer. Be sure to include your full name, contact details, policy number and the date you’d like to cancel your coverage.
While you’re at it, cancel any automatic payments you may have set up with your bank or insurer. And if you don’t receive a confirmation from your insurer within a few business days, follow up to make sure the policy has been cancelled.
Canceling permanent life insurance
Since permanent policies have an investment component, canceling is a little more complicated. You’ll need to contact your insurer.
Depending on your insurer’s guidelines and how long you’ve owned the policy, they’ll likely give you three options:
- Surrender the policy. You might be able to surrender your policy and collect any cash value you’ve accumulated. However, you’ll probably have to pay fees — especially if you cancel within the first 10 to 20 years of taking out the policy. The catch? The cash value is taxable.
- Reduced paid-up option. This allows you to stop paying premiums but maintain a reduced death benefit on your policy. If you die, your beneficiaries will receive a lump sum.
- Let it lapse. If you stop paying premiums, your insurer will cancel your coverage. But if your policy has accumulated cash value, you’ll lose it — so only go down this route if you’re comfortable with that.
What about my group life insurance?
If your employer decides to stop offering life insurance as part of its employee benefits, it can cancel your policy. Otherwise, your coverage will automatically be cancelled when you leave that job — unless there’s an option to convert to an individual policy.
Reasons to cancel
If these situations apply to you, it might make sense to cancel your life insurance:
- You no longer have financial dependents.
- You’ve paid off all of your debt.
- You can’t afford the premiums.
- You want to invest your money in an account or portfolio with higher returns.
- You want to take a more aggressive approach to investing.
- You want to collect the cash value portion of your policy.
- You’ve stopped smoking or your health has improved, and you’ve been offered a better rate on a new life insurance policy.
What if I change my mind about canceling my policy?
You’ll need to apply for a new policy, and potentially go through the underwriting process again. Your insurer will charge you a much higher rate, too. This is because life insurance premiums are based on factors like your age and health, so the longer you wait, the more you’ll pay for coverage.
If you let your policy lapse, most providers will reinstate your coverage within 30 days. You might not need to fill out any additional paperwork, but you will have to make up the premiums you missed.
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Can my life insurance company cancel my policy?
Your insurer can cancel your policy in two circumstances:
- You haven’t paid your premium within the grace period.
- You lied on your application. A life insurance application is a legally binding document, and lying on it is a form of fraud. If your insurer discovers you withheld pertinent information, they have the right to raise your rates or cancel coverage.
Your insurance company can’t cancel your coverage if you start smoking, take up a dangerous job, gain weight, or are diagnosed with a health condition.
I don’t want to cancel my coverage completely. What are my options?
If you want to hold onto your policy, you might be able to:
- Reduce your coverage. Most insurers will allow you to decrease the face value of your policy once — and in turn, lower your premiums.
- Take a new medical exam. If you’ve had your policy for at least a year and your health has significantly improved, your insurer may let you take another medical exam. If the results are good, they might lower your rate.
Canceling it is a fairly straightforward process, and can be as easy as you stopping payments. But unless you have a return of premium policy or cancel during the free look period, you won’t get your money back.
To find a policy that suits your specific needs and budget, compare life insurance providers.
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