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Canceling your life insurance policy
You can cancel your coverage at any time — but you probably won’t get your money back.
Updated . What changed?
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?
- Will I get my money back if I cancel my life insurance policy?
- How do I cancel my life insurance policy?
- What happens if I stop paying premiums?
- What is the cash surrender value?
- Reasons to cancel your life insurance policy
- Compare life insurance companies
- Can my life insurance company cancel my policy?
- What if I can't afford my premiums or need to access my cash value?
- Bottom line
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. Canceling a term life policy is pretty straightforward. But since permanent policies are life insurance and investment products rolled into one, the process can be complex and time-consuming.
I still want coverage. Can I convert my term life insurance policy instead?
If your term life policy has a conversion feature, you can convert to a permanent policy before the deadline. Depending on your insurer, this may be within the first five to ten years of taking out the policy, or before your 60th, 65th or 70th birthday.
If the deadline has passed, you won’t be able to convert your coverage.
Will I get my money back if I cancel my life insurance policy?
In most cases, you won’t receive a refund on the premiums you paid. There are two exceptions:
- You canceled 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. However, keep in mind you can’t add this rider after signing up for your policy, so make sure it’s included if you think you’ll need to cancel your policy early.
How do I cancel my life insurance policy?
The process varies between policies, but these are the general guidelines.
Canceling term life insurance
To cancel your coverage, you can call your insurer, write a letter or fill out a cancellation form. 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.
If you don’t receive a confirmation from your insurer within a few business days, follow up to make sure the policy has been canceled.
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 these 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. Typically, the fees in the first two to three years are steep, so the insurer can recoup their costs of selling and setting up the policy. After that, the surrender fees are usually reduced by an annual percentage over the first decade. For example, if your surrender penalty was 10% in the first year of owning your policy, it might be 9% in the second year, 5% in the fifth year, and 1% in the tenth year. All of these fees will be detailed in your policy documents. When you cancel your policy this way, you’ll walk away with the “cash surrender value” — and the longer you owned your policy, the more money you’ll get.
- Reduced paid-up option. Your insurer may offer this option, which 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.
- Sell your policy. You may be able to sell your policy to a third-party for a one-time upfront payment. This is known as a life settlement, and the buyer becomes the beneficiary and owner of the policy and takes over the premium payments. Just keep in mind that the payment to you is usually less than the death benefit.
What happens if I stop paying premiums?
If you stop paying premiums by the end of the grace period — which is usually 30 days from your premium’s due date — your insurer will cancel your coverage. But if you have a permanent policy with accumulated cash value, you’ll lose it — so only go down this route if you’re comfortable with that. And it may affect your ability to get coverage later on, especially if you want to apply with the same insurer.
What is the cash surrender value?
Permanent policies contain a cash value component that grows over time. If you surrender your permanent policy, you might be able to collect some of the cash value — and this is known as the “cash surrender value.”
The dollar figure you’ll get depends on how long you owned the policy. For example, if you cancel during the first few years of taking out a policy, you may not have built up enough cash value to collect. And if you cancel at a later stage, you’ll receive the cash value minus any fees, charges and loans.
The catch? Your cash value surrender might be taxed if the amount is larger than the cost basis of the policy. The basis is the money you’ve contributed to the cash value via your premiums.
When can my group life insurance be canceled?
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 canceled when you leave that job — unless there’s an option to convert to an individual policy.
Reasons to cancel your life insurance policy
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.
Compare life insurance companies
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.
What if I can’t afford my premiums or need to access my cash value?
If you want to keep your coverage but can’t afford to pay your premiums, 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, your insurer might lower your rate.
- Borrow against your policy. Once you’ve built up enough cash value, you can take out tax-free loans against your permanent policy — but if you don’t pay it back, this may reduce the death benefit your beneficiaries receive when you die.
- Sell your policy as a life settlement. If you’re an older policyholder who’s expected to live for another five to ten years, you might be able to sell your life insurance policy. However, be aware of broker fees and tax implications.
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 companies.
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