How to cancel your whole life insurance policy

Everything you need to know about canceling a whole life policy, from how and when to do it to calculating your cash surrender value.

How to cancel your whole life insurance policy There are many reasons you might want to cancel a life insurance policy. People regularly cancel or change their life insurance coverage, but there are more factors to consider when canceling a whole life insurance policy than when canceling a term policy.

Maybe you bought a policy that is too expensive now, or maybe you’ve decided that it makes more sense to keep your retirement investments separate from your life insurance and you want to switch over to a lower cost term life policy.

When you call your insurance provider to cancel your whole life insurance policy, you’re officially surrendering the policy. But unlike term insurance, the cash value of whole insurance means you can't simply stop paying the premium and assume the policy will end.

Your options when canceling whole life insurance will depend on the age of the policy, the insurer’s rules for handling missed payments — including their nonforfeiture clause — and the potential tax consequences.


  • Whole life insurance is a type of permanent policy that stays active as long as you pay the premiums

  • If you cancel your policy, you may receive the cash surrender value of the policy

  • Canceling in the first few years of the policy may mean you’ll have to pay fees and you might not get any money back

What is whole life insurance?

There are two main categories of life insurance policy: Whole life insurance and term life insurance. With term life, you pay a monthly premium to keep the policy in effect.

If you die while the policy is active, your beneficiaries get the death benefit, which is the insurance payout. But the key with term life is that you set a policy length — typically 10, 20, or 30 years — and then once the term is over, the policy expires.

Whole life insurance is different. It’s a type of permanent life insurance, meaning it stays active for your entire life as long as you keep paying your premiums. But it’s a little more complicated than term life: Whole life is made up of both the death benefit and the cash value, which is invested, like a retirement account.

The cash value amount grows over time, and you can even take out a loan from your policy’s cash value, or use it for retirement.

Whole life insurance is typically five to 15 times more expensive than term life, and most financial experts recommend term life for the average consumer. But whole life can be right for some people, especially if your assets will be subject to the estate tax after your death.

Can I cancel my whole life insurance policy at any time?

Canceling your whole life policy starts with a call to your insurance provider. The next steps will depend on how long you’ve owned your whole life policy.

Due to its high cost, a quarter of whole life policies are terminated within the first three years, and nearly half are terminated within the first 10 years, so insurers like to make sure they can recover their expenses if you cancel.

How they do this varies from policy to policy, but generally the longer you’ve owned the policy, the easier it is to get the full cash value from it. Here’s what you should know if you want to cancel your policy and cash out…

… after 2 or 3 years of owning the policy

The first few years of the policy are considered the surrender period, which has different surrender rules than the rest of the policy’s lifespan.

Some insurers won’t return any cash value amount if you surrender your policy during this period, while other insurers will apply steep penalties in order to recoup their own expenses from selling and setting up the policy.

… after 10 or 20 years of owning the policy

Insurers typically reduce the surrender fee by a yearly percentage over the first decade the policy is in force, meaning if your surrender penalty is equal to 10% of your annual premium in year one, it might be 9% in year two, 1% in year 10, and 0% after that. Talk to your insurer or read your policy to understand your surrender fees.

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What is 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.

How much money you get back from your whole life policy depends on how long you’ve had the policy when you cancel it. As explained above, if you cancel your whole life policy during the surrender period, you may not get the cash value at all.

Calculate your cash surrender value

If you cancel after years or even decades of maintaining a whole life policy, the cash surrender value will be lower than the policy’s cash value amount when you cancel. Your cash surrender value is determined by subtracting the fees and charges associated with managing your policy from the current cash value. Your insurer or policy documents can help you do a calculation for your policy. The longer your policy’s been active, the greater the cash surrender value will be.

Is the cash surrender value taxable?

A big chunk of the cash surrender value of your whole life policy is tax-free, but some of it is subject to taxes. If the amount you receive is larger than the cost basis of the policy, you’ll be taxed on the amount over the basis.

The cost basis is the amount you’ve contributed to the cash value through your premiums. Any money the cash value has accrued beyond the basis can be taxed.

You can determine your policy’s cost basis by adding together the premiums you’ve paid into the policy and then subtracting any dividends you’ve been paid, any cash you’ve already withdrawn, and any agent commissions or administrative fees that were paid by your premiums. Be sure to 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?

Nonforfeiture is a feature of whole life insurance that gives you options if you want to stop paying your premiums. The easiest way to understand nonforfeiture is to compare it with term life insurance. With term life, if you stop paying your premiums, the policy lapses and your coverage ends, and that’s that.

With whole life you’ve got more moving parts, and if you’re past the surrender period and miss a payment, the insurer may offer you some alternatives or even apply one by default:

  • Cancel the policy and cash out. Assuming you’re past the surrender period, you can cancel the policy and take the cash surrender value, forfeiting future coverage.

  • Keep the death benefit for a shorter term. Your insurer may allow you to keep the death benefit from your whole life policy for a certain amount of time, similar to a term life policy.

  • Take a reduced paid-up option. Your insurer may offer you a reduced paid-up option, meaning you stop paying your premiums and keep the whole life policy with a reduced death benefit.

If you’ve built up enough cash value, you may even be able to let the policy lie dormant for years while the cash value pays for your premiums and then resume paying premiums into the policy at a later date.

These nonforfeiture rules are really meant for policyowners who miss payments but still want to hang on to some part of their policy. If you’re simply trying to get rid of your whole life policy and take the cash value, it’s still worth asking your insurer about them to understand all of your options.


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How to get your policy’s cash value without canceling

If you want to cancel your whole life policy just to get the cash surrender value, there are more options available to you than simply surrendering the policy. Talk to a financial advisor for more information, but in general, your options include:

  • Withdrawing cash from the cash value amount
    Doing this will likely reduce your death benefit, so be sure to talk to your agent or financial advisor first.

  • Taking out a loan against the cash value
    You’re essentially borrowing from yourself, but your insurer will still apply an interest rate to the loan when you pay it back..

  • Selling the policy to a life settlement group The option to sell your policy is is typically only available to older policyowners who are expected to live another five to 10 years.

Although it’s definitely more complicated to cancel a whole life policy than it is to cancel a term life policy, it’s not impossible. Take the time to review all of your options and understand the fine print.

Can I reduce my whole life insurance coverage?

If you’re looking to lower your premiums by decreasing your whole life coverage, it’s possible to do so, but it will be significantly more complicated than reducing the coverage on a term life policy.

You can contact your insurance company to find out if decreasing your coverage is an option, but generally there are better ways to lower your monthly premiums, like taking a reduced paid-up option or shopping for a more affordable term life policy.

Insurance Expert

Anna Swartz

Insurance Expert

Anna Swartz is a Managing Editor at Policygenius in New York City, and an expert in auto insurance. Previously, she was a senior staff writer at Mic, writing about news and culture. Her work has appeared in The Dodo, AOL, HuffPost, Salon and Heeb.

Life Insurance Expert

Amanda Shih

Life Insurance Expert

Amanda Shih is a life insurance editor at Policygenius in New York City. She has a passion for making complex topics relatable and understandable, and has been writing about insurance since 2017 with specialities in life insurance cost and policy types. She's previously written for Jetty and LegalZoom.

Amanda has a B.A. in literature and communication from New York University.

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