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How to cancel your life insurance policy

You took the medical exam, you’ve dutifully paid your premiums, and now you want out — why some people cancel their life insurance, plus how to do it.

There are many reasons that you may want to cancel your life insurance policy. Some 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 a monthly spa day instead). The considerations are different whether you have term life insurance or whole life insurance — and the steps to cancel are different, too.

If you’re thinking about canceling your life insurance policy, we’ll go over the risks, and walk you through how to do it.

Read on to find out:

Why you might cancel your life insurance

Just like term life and whole life insurance are two different beasts, the motivations for canceling are also different.

Reasons you might cancel term life insurance

  • You no longer need it (for example, your kids are out of school, your mortgage is paid off)
  • You can no longer afford it
  • You have found life insurance coverage at a better rate, either because of industry-wide price drops or because your health has improved
  • Buyer’s remorse

Reasons you might cancel whole life insurance

  • You can no longer afford it
  • Your want to separate your retirement investments from your life insurance
  • You want to switch to a lower-cost term life insurance policy
  • You want to access the cash value portion

Things to consider before you cancel your life insurance

Just like buying life insurance is a personal decision, deciding to cancel your policy is personal, too.

If you’re thinking about canceling, revisit the reasons that you decided to buy life insurance in the first place. If your situation hasn’t changed drastically from when you first bought your life insurance policy, it probably doesn’t make sense to cancel it. (One exception: If you want to cancel because you’ve found a better rate, you should wait until the new policy with the new rate is active before you cancel your old policy — if you cancel before your new policy is signed, you risk not being covered at all.)

If your situation has changed and you still want to cancel, there are few things you should consider before you cancelling your life insurance:

  1. You will lose all the premiums you’ve paid (unless you’re surrendering a whole life policy that you’ve had past the surrender period, in which case you may be able to keep the cash value of the plan, less any surrender fees).
  2. Your family will no longer be protected in case of your death.
  3. You will have to reapply — and undergo a new medical exam — if you decide you want coverage in the future, which means that your rates could be much higher. Your lower rates, set when you were younger and (probably) healthier, will be gone forever.

After considering these facts, it still might make sense for you to drop your policy — but it’s not something to be taken lightly.

Canceling during the free look period

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.

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How to cancel your life insurance

Canceling your life insurance policy is different depending on if you have a term life insurance or whole life insurance.

How to cancel your term life insurance policy

Canceling your term life insurance policy is as easy as stopping payments. 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 canceling 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.

You won’t get refunded, and your family will no longer get a death benefit if you die, but you’ll also no longer owe premiums.

How to cancel your whole life insurance policy

Canceling a whole life insurance policy is more complicated that just stopping payments. Each policy has slightly different forfeiture rules, but generally, canceling 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:

  1. Cash out the policy One of the appeals of whole life insurance is that it has a cash value. The first few years of your whole life policy are the “surrender period” (the exact time length will be set in your policy). If you cancel during this period, there will be fees and penalties and there may be no cash value to redeem. 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.

  2. 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.

  3. Let it lapse If you stop making payments, some insurers will automatically cash out your 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.

Alternatives to canceling your life insurance policy

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.

Alternatives to canceling your term life insurance policy

Before you cancel your term life insurance policy, it’s worth considering your alternatives:

  • 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.

Alternatives to canceling your whole life insurance policy

There are a few alternatives to canceling a whole a life insurance policy:

  • It may be possible to reduce your policy’s premiums (and coverage amount)
  • Arrange for the cash value of the policy to pay for the premiums for a short time
  • There are some companies that buy out whole life insurance policies — they’ll pay you more than the cash value now, and name themselves as the beneficiaries, getting the death benefit when you die — but the process can be confusing and there are tax implications, so tread carefully.

Further reading

What Is Life Insurance?

What is life insurance good for? How long does it last? Who needs it? It seems complicated, but we'll break it down.

Learn More

How Much Life Insurance Do I Need?

Consider the ages of your spouse and kids and how much of your income they'll need to cover their expenses.

Learn More

Term Life vs Whole Life

To decide between term or whole life, you should know how they’re different and what situation they're best for.

Learn More

The Best Life Insurance Companies

Save thousands of dollars by choosing the right life insurance company for your situation.

Learn More

Disclaimer: 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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