What to do when you don’t need or want your independent disability insurance policy anymore.
Maybe you’ve decided you no longer need disability insurance, or maybe you never wanted it in the first place. Maybe you’ve looked at your budget and decided disability insurance is the piece that doesn’t fit, or maybe a windfall has ensured that your income is no longer required.
Before you cancel your independent disability insurance, there are some things to consider.
Decided and set? It’s easy to cancel.
Read on to find out:
There are several reasons why you might consider canceling your disability insurance policies. Some are better reasons to cancel than others, but here are the most common:
A new job provides disability insurance
You can no longer afford the premiums
You no longer rely on your income (due to a windfall or inheritance, for example)
You are close to retirement age and can replace any possible lost income with savings
Canceling your disability insurance coverage is not a small choice, and not just because signing up for one can take a long time and involve a medical exam. If you do decide that you want coverage again in the future, the process will take a long time, yes, but also, that new medical exam combined with your new rates, will determine your new rates.
When leave your current job, you’ll lose that coverage too and have to reapply.
If your employer pays your premiums, the benefit will be taxed, which could result in a significantly large gap in income.
Employer-provided disability coverage may not take into account bonus or commission income, again leaving you with an income gap.
Your employer-provided coverage may have significant limitations compared to your private policy.
Disability insurance is an important safeguard, and other cuts to your budget may be more prudent — if you become disabled and can’t work and bring in money, you won’t be able to afford anything
You won’t be able to simply resume your coverage when your circumstances change — you’ll have to apply for a new policy, and likely at a much higher rate (since you’ll be older).
Will the money truly last the rest of your working life? If you end up needing to work again or once again becoming reliant on income, you may need disability coverage again, and re-applying later could mean much higher premiums.
This is actually a good reason to cancel — most policies will only pay out benefits up until age 65, so if you’re getting close and have enough in savings to offset early retirement, it may make more sense to save or invest your remaining premium money and supplement with other savings. The question to ask: if you cancel and something happened the next day, could you truly pay for everything with savings?
Canceling your disability insurance is easy: you simply stop paying your premiums. If you pay premiums annually and you want to cancel after you’ve paid the year’s premium, contact your insurer to cancel — you should be able to get a prorated refund.
And that’s it — if you stop paying your premiums, after a grace period set by your insurance company (usually 31 days), your policy will be terminated. You can no longer make a claim against it, and you will have forfeited all paid premiums, but you will have canceled your disability insurance.
If you change your mind, you’ll likely have to apply for a new policy, but it’s worth contacting your insurance company to ask about reinstatement: some companies may reinstate the policy if you pay back all past due premiums.
Some people are also worried about whether their policy could be canceled by the insurer. Most policies are guaranteed renewable, which means your insurance company cannot cancel your policy as long as you pay the premium. As long as you are honest with your insurance company during the application process and continue to pay your premiums, you needn’t be worried about your benefits being canceled.
If you’ve filed a claim and are receiving benefits, there are some things that can trigger a review and cancellation of benefits, however:
If your insurer finds out you lied on your application
If your insurer finds out you’ve made a false claim
If your insurer finds out you’re continuing to receive benefits when you’re no longer disabled
If you fail to apply for Social Security Disability Benefit to offset your private disability benefit
If you fail to receive regular medical treatment
And it’s also important to note that, even if you follow all the rules, your benefits don’t last forever. In fact, your insurance contract will stipulate when your benefits expire. For some policies, it’s when you reach age 65 (at which point you can start collecting Social Security). Other policies have set benefit periods — 2, 5, or 10 years — that you choose when you sign up for the policy.
Consult your policy or talk to your insurance company to find out what requirements you must meet to keep your disability insurance policy active.
Logan Sachon is the co-founder of The Billfold, a groundbreaking personal finance site for millennials that was named one of Time's 25 Best Blogs of 2012. Her work has been published in New York Magazine, Glamour, The Guardian, BuzzFeed and more.