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Steps to cancel your policy, plus answers to common questions about cancelling.
There are many reasons that people may want to cancel life insurance. Some reasons make good sense (like paying off your loans early and no longer needing a policy to cover them) and some don’t (like wanting to spend your monthly premium payments on takeout instead).
But the considerations when deciding to cancel life insurance are different whether you have term life insurance or whole life insurance — and the steps to cancel are different, too.
Read on to find out:
When considering cancelling your life insurance policy, it’s important to know what happens.
1. You no longer have life insurance. The most obvious result of cancelling your policy is that you will no longer have life insurance, and your family will not receive any death benefit when you die. Even if you've dutifully paid premiums for years, once your policy is cancelled, your coverage is cancelled, too.
2. You forfeit your premium payments. Less obvious is that you will not get any of your paid premiums back. If you have a term-life policy, you won’t get any refund or cash if you cancel your policy or let it lapse. (Whole life policies with a cash value may provide some cash when cancelled.)
The one exception: If you cancel your policy mid-payment cycle, you may be refunded unused premiums, that is, premiums paid for dates between the date of cancellation and the due date of the next premium.
3. You will have to reapply for new coverage. When you cancel your life insurance policy, you are also forfeiting your current rates. If you decide you want coverage in the future, you have to take a new medical exam and go through underwriting again, meaning that your rates could be much higher. Your lower rates, set when you were younger and (probably) healthier, will be gone forever.
Cancelling your life insurance policy is different depending on if you have a term life insurance or whole life insurance.
If you immediately regret your life insurance purchase, you may be able to cancel it without penalty or cost if you’re still within the “free look” period.
The free look period is mandated by state and can be between 10 to 30 days, so check your policy or ask your insurer how long your free-look period is. If you cancel during the free look period, any premiums you have paid will be fully refunded.
There are two ways to cancel your term life insurance policy.
1. Stop paying premiums. If you don’t pay your premium within the defined grace period — the mandatory period set by your policy during which you can pay your premium without cancelling your coverage — and your insurance is canceled. That’s usually a bad thing, but if you want to cancel your term life insurance policy, it’s that easy: just don’t pay.
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 payments is considered written notice, but you can also write a very simple letter.
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 ADDRESSS.
Cancelling a whole life insurance policy is more complicated that just stopping payments. Each policy has slightly different forfeiture rules, but generally, cancelling whole life insurance starts with a call to your insurer. What happens after that will depend on how long you’ve owned the policy and your insurer’s rules, but there are three general options:
If you cancel within the first 10-20 years (again, check your policy), the cash value of your policy may be subject to high fees from your insurance company. And while a life insurance death benefit isn’t taxable income, cash value from a policy that you cancel is taxable.
Reduced paid-up option. Some insurers will offer a reduced paid-up option, which keeps allows you to stop paying premiums and keep a reduced death benefit on your whole life policy.
Let it lapse. If you stop making payments, some insurers will automatically cash out your whole life policy; others will let the policy lapse, in which case you may be able to reinstate it within a set period. You’ll likely have to pay back premiums and go through underwriting again, but the cost could be less than buying a new policy.
Learn more about canceling your whole life insurance policy.
Your insurance company can only cancel your policy is very specific instances, detailed in your policy.
Reasons for cancellation include:
Non-payment of premiums. If you don’t pay your premiums within the grace period, your policy will be terminated.
Fraud. The first two years that your policy is in force is called the contestability period. During that time, the insurer reserves the right investigate your cause of death and to cancel your policy if it finds that you lied on your application.
Your insurance company cannot cancel your policy for any other reason, including if you gain weight, start smoking, develop a dangerous hobby, or get sick.
One exception is that your group life insurance policy can be cancelled by your employer at any time if they choose to stop offering the coverage.
Additionally, your coverage through the group policy will terminate when you leave your job, unless you convert it to an individual policy, which may be a possibility.
There are many reasons people may consider cancelling life insurance.
If you want to cancel because your premiums are too high right now or because your health changed, there may be a way to change the terms of your policy without cancelling, depending on the type of policy you have.
Before you cancel your life insurance policy, it’s worth considering your alternatives:
Lower your coverage amount. Most insurers will let you decrease your coverage amount at least once. Talk to your insurer about lowering your policy’s coverage amount, which can reduce your premiums.
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; talk to your insurer about the possibility of taking a new medical exam once you’ve had your policy for a year.
Arrange for the cash value of the policy to pay for the premiums (whole life only) If you have a whole life policy with a cash value, you may be able to have the cash value cover your premiums. Talk to your insurer.
A Policygenius agent can help you find a better rate on a life insurance policy.
Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.
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