You can cancel a term life insurance policy by stopping payments or contacting your provider, but canceling a whole life policy is more complicated. Here’s a step-by-step guide on how to cancel your coverage.
Updated June 10, 2021|5 min read
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There are some reasons to cancel your life insurance policy that also make good financial sense. For example, when you pay off your debts, you no longer need a policy to cover them when you pass away.
Canceling your life insurance policy can be as simple as calling your insurance provider or skipping any future premium payments. But the impact of canceling differs depending on how long you’ve had your policy and whether you have term life insurance, which is simpler to cancel, or whole life insurance, which is more complex and can come with cancellation fees.
You can cancel a life insurance policy by halting payment or calling your insurer
There are penalties for canceling permanent life insurance during the first several years of the policy
You won’t get a refund of premiums you’ve paid unless you cancel during the free look period
If you cancel a whole life policy you receive a cash surrender payout, which could be taxed
Canceling term insurance is much simpler than canceling whole insurance. With either type of coverage, you can cancel your life insurance policy at any time. But, when you cancel your policy affects whether you’ll be able to get any of your money back.
If you immediately regret your life insurance purchase, you can cancel it without penalty or cost during the free look period, which begins as soon as your policy is delivered to you. If you cancel during the free look period, any premiums you’ve paid are fully refunded.
Free look periods last 10-30 days, depending on your insurer and regulations in your state.
There are a few ways to cancel a term life insurance policy.
1. Stop paying premiums. If you miss a premium payment and don’t pay it within the grace period— the 30-31 days after your due date during which you still have coverage—your insurance is canceled.
2. Write a letter. Provide written notice to your insurer that you’d like to cancel your policy. Some policies detail in their contracts that issuing a stop-payment order for your premiums is considered written notice, but you can also write a very simple letter.
Here’s an example of a term life insurance policy cancellation letter:
I’m writing to cancel my policy, effective DATE.
My policy number is POLICY NUMBER.
Please return any unused premiums to ADDRESS.
Check your provider’s website too—some may have a way to submit notice online.
3. Call your provider. Most life insurers can cancel your policy over the phone, or at least start the process for you. Have your policy number handy and an insurance agent should be able to guide you through the steps.
No matter how you choose to cancel your policy, there’s no penalty or fee for ending term life insurance coverage.
Canceling a whole life insurance policy takes more than just stopping payments. Each policy has slightly different forfeiture rules, but generally, you should start with a call to your insurer. Your options will depend on how long you’ve owned the policy and your insurance company’s rules, but there are usually three choices:
1. Cash out the policy.
Whole life insurance has a cash value account, which earns interest over time. Every policy has a cash surrender value, which is the cash value amount minus fees and penalties. Penalties for cashing out apply during the surrender period, which can last a decade or more. Interest earnings are also taxed as income if you cash out.
2. Let it lapse.
Some insurers will automatically cash out your whole life policy and let the coverage lapse if you stop making payments. Other types of permanent insurance, like universal life insurance, automatically use your cash value to fund your premiums if you stop paying. This depletes the payout you’d get from canceling the policy, and when the cash runs out, your policy lapses.
In either scenario, if your whole life policy lapses, you can face surrender charges and taxes.
3. Opt for reduced paid-up insurance.
This option comes with the fewest fees. A reduced paid-up option allows you to stop paying premiums in exchange for a lower death benefit. The reduced benefit is based on the premiums you’ve already paid, and coverage lasts for life.
Even though the potential payout is much smaller, a reduced paid-up option doesn’t come with penalties and maintains some amount of insurance protection.
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Whether you’ve been paying life insurance premiums for months, years, or decades, you’ve put a lot of money toward your policy. Will you get any of it back? Probably not.
There are only two ways to get some of your premiums refunded if you cancel your coverage:
Cancel during the free look period: As mentioned above, you’ll get your initial premium payment back if you cancel during the 10-30 day free look period.
Cancel in the middle of a billing cycle: If you cancel mid-payment cycle, your insurer will send you a refund for the time between your cancellation date and next payment date. Any other premiums you’ve paid aren’t refundable.
It’s important to have life insurance coverage if you have dependents or shared debts, but there are legitimate reasons to consider canceling your policy. For example, you might:
Be unable to afford the policy
Find more affordable coverage elsewhere
No longer need a policy (for example, your kids are out of school and your mortgage is paid off)
Want to cash out the cash value amount
Your insurance company can only cancel your policy in very specific instances detailed in your policy contract.
Insurance regulations prevent insurance companies from canceling coverage except in cases involving:
Non-payment of premiums: If you don’t pay your premiums within the grace period, your policy is terminated.
Fraud: The insurance company can cancel your policy if you were intentionally dishonest on your application. This could apply even after the contestability period, when an insurer has the right to investigate your cause of death.
Your insurance company cannot cancel your policy for any other reason, including if you gain weight, start smoking, pick up a dangerous hobby, or get sick.
One exception is that an employer can choose to cancel a group life insurance policy at its discretion. You also lose group coverage when you leave the company.
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When you cancel your life insurance policy, you also forfeit your current rates and leave your loved ones without financial protection. If you decide you need a policy in the future, your premiums will be higher because you’ve aged.
Before you cancel your policy, it’s worth considering alternatives that can lower your premiums:
Arrange for the cash value of the policy to pay for the premiums. If you have a permanent policy, you may be able to use the cash value to cover your premiums until you can afford to pay them out-of-pocket.
Ask for a new medical exam. If you’ve lost weight, quit smoking, or made another significant lifestyle change, you could qualify for lower premiums. Most life insurance companies offer reconsideration once you’ve had your policy and maintained your lifestyle improvement for at least a year.
Lower your coverage amount. Most insurers let you decrease your coverage amount at least once, which will reduce your premiums.
The steps for canceling your life insurance are straightforward, but the impact may not be. Before you end your coverage, find out what the potential penalties would be and confirm that your loved ones will still be protected. Your insurance agent or broker can walk you through cancellation options or suggest alternatives to terminating your policy.
You can cancel term life insurance by stopping premium payments or contacting your insurer. To cancel whole life insurance, call your insurer to discuss cancellation options and potential fees.
Yes. Canceling term life insurance comes with no penalties. Insurers charge a fee if you cancel whole life insurance during the surrender period, which is subtracted from your policy’s cash value.
You don’t get money back after canceling term life insurance unless you cancel during the free look period or mid-billing cycle. You may receive some money from your cash value if you cancel a whole life policy, but any gains are taxed as income.
After you cancel your life insurance policy, you give up any premiums you’ve paid into the policy and your beneficiaries won’t receive the life insurance payout when you pass away.
Reasons to cancel your coverage include no longer needing coverage once your debts are paid, switching to a cheaper policy, or being unable to pay your premiums.