How to cancel your life insurance policy

You can cancel term life insurance by stopping payments or contacting your provider. Canceling a whole life policy requires a conversation with your insurance company.

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Amanda Shih

Amanda Shih

Editor & Licensed Life Insurance Expert

Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

Updated|6 min read

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Having a life insurance policy is important for your family's financial protection, but there are some reasons to cancel your coverage that can make good financial sense. For example, once 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 depends 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.

If your main reason for canceling coverage is affordability, there are ways to lower your premiums without losing your insurance protection. Speak with one of our licensed agents to find the best option for your circumstances.

Key takeaways

  • You won’t get a refund of the premiums you’ve paid unless you cancel during the free look period.

  • You can cancel your life insurance policy at any time.

  • There are penalties for canceling permanent life insurance during the first several years of the policy.

  • If you cancel a whole life policy you may receive a cash surrender payout, which could be taxed.

How to cancel a life insurance policy

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.

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Canceling during the free look period

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 to 30 days, depending on your insurer and regulations in your state. 

How to cancel a term life insurance policy

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 to 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:

    Dear INSURER,

    I’m writing to cancel my policy, effective DATE.

    My policy number is POLICY NUMBER.

    Please return any unused premiums to ADDRESS.

    Sincerely, NAME

    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 agent can 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.

How to cancel a whole life insurance policy

Canceling a whole life insurance policy takes more than just stopping payments. Each policy has slightly different forfeiture rules, so 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 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, you can be charged surrender fees 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.

When can you cancel a whole life insurance policy?

You can cancel a whole life insurance policy at any time, but you’ll face penalties if you cancel during the first 10 years of your coverage. The penalty amount and how much of your cash value you keep depends on how long you’ve owned your whole life policy and the cash value amount you’ve accumulated. 

Canceling during the surrender period

The surrender period covers the first few years of your policy and has different cancellation rules than the rest of the policy’s lifespan.

Some insurers won’t return any cash value amount if you surrender your policy during the surrender period. Most insurers also charge steep surrender fees during this time to recoup their expenses from selling and setting up the life insurance policy.

Canceling after the surrender period

After the surrender period, it’s more likely that you’ll keep some of your cash value earnings, but you could still pay surrender charges.

Insurers typically reduce the surrender fee once a year over the first decade the policy is active, meaning if your surrender penalty is equal to 10% of your annual premium in year one, it might be 9% in year two, down to 1% in year 10, and 0% after that. Surrender fees are listed in your policy contract.

What is the cash surrender value?

When you cancel your whole life policy and take the cash value, the amount you walk away with is called the cash surrender value. Generally, the longer you’ve owned the policy, the higher its cash surrender value.

How to calculate the cash surrender value

Even if you cancel several years into your whole life insurance policy, its cash surrender value will be lower than its cash value amount. Your cash surrender value is your current cash value minus any fees associated with maintaining your policy. 

Your insurance agent can share the exact fees for your policy and help you calculate the cash surrender value.

Is the cash surrender value taxable?

If the cash surrender amount you receive is higher than the cost basis of the policy, you’ll be taxed on the amount over the cost basis.

The cost basis is how much you’ve paid into the cash value through your premiums. You or your insurer can calculate your policy’s cost basis by calculating how much you’ve paid into your cash value, then subtracting:

  • Agent commissions or administrative fees covered by your premiums

  • Cash you’ve already withdrawn from the account

  • Dividends paid to you by your insurance company 

Talk to a tax professional for clarification on how taxes will affect your specific situation.

What happens if you stop paying whole life insurance premiums?

With a term life insurance policy, if you stop paying your premiums, the policy lapses and your life insurance coverage ends, and that’s that. If you stop paying your whole life premiums, your insurer will offer you nonforfeiture options or apply one by default.

Nonforfeiture options allow you to stop paying premiums but still get some value out of your policy. Common nonforfeiture options are:

  • Cancel the policy and cash out. You take the cash surrender value and forfeit future coverage. This option is often applied by default.

  • Keep the death benefit for a shorter term. Your cash value goes toward buying a term life policy with the same death benefit. Also known as extended term life insurance, this means you’ll lose coverage when your term ends.

  • Take a reduced paid-up option. You no longer owe premiums and you keep your whole life insurance policy, but with a reduced death benefit.

These nonforfeiture rules are mainly meant for policy owners who miss payments but still want to hang on to some part of their policy. But even if you plan to cancel your insurance policy entirely, it’s still worth asking your insurer about nonforfeiture to understand all of your options. 

When should you cancel a life insurance policy?

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:

  • 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

Do you get money back when you cancel a life insurance policy?

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 to 30 day free look period.

  • Cancel in the middle of a billing cycle: If you cancel mid-payment cycle, your insurer will refund you for the time between your cancellation date and the next payment date. Any other premiums you’ve paid aren’t refundable.

Alternatives to canceling life insurance

Canceling your life insurance policy isn't advisable if anyone still counts on your financial support. Ending your coverage not only leaves your loved ones unprotected, it forfeits your current rates. If you decide you need a policy in the future, your premiums will be higher. 

If your policy no longer fits your needs or budget, there are ways to lower your premiums or adjust your coverage without completely losing life insurance protection.

  • Arrange for the cash value of the policy to pay your 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 positive lifestyle changes for at least a year.

  • Lower your coverage amount. Most insurers let you decrease your coverage amount at least once, which can make your premiums more affordable and help you customize your coverage to your current financial obligations.

  • Shop for a new policy. It's possible that your current policy needs or health improvements could earn you lower rates with a different insurance company. Work with a broker to compare quotes and replace your existing policy.

A life insurance agent can walk you through the best option for your circumstances and help you make any necessary adjustments.

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Can your insurance company cancel your life insurance policy?

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 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 your company.

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.

Frequently asked questions

How do I cancel my life insurance 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.

Can I cancel my life insurance policy at any time?

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.

Do I get my money back if I cancel my life insurance policy?

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.

When should I cancel my life insurance policy?

Reasons to cancel your coverage include no longer needing coverage once your debts are paid or switching to a cheaper policy.

Do you get money back if you cancel whole life insurance?

You can get money from your policy’s cash value. The amount of money you get depends on how much cash value has accrued, when you surrender the policy, surrender fees, and taxes.

What happens if you surrender a whole life insurance policy?

When you surrender a whole life insurance policy, your insurance protection ends and you may get some cash back from the policy’s cash value.

Author

Editor & Licensed Life Insurance Expert

Amanda Shih

Editor & Licensed Life Insurance Expert

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Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

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