How To Cancel Life Insurance (2024 Guide) (2024)

You can cancel a policy anytime, and the process is straightforward. But how and when you end coverage may yield benefits if you make the right moves at the right time.

Your policy will include underwriting terms and conditions when you buy insurance. Part of that information will give you the steps you need and the information you’ll have to provide to your insurer if you decide to cancel.

Term Life Insurance Cancellation

Cancellation is straightforward with a term life policy. You should contact your life insurance company with a written notice and advise them you are ending the policy. You can also simply stop paying premiums to get the same result. You might want to check your insurer’s website to see if there’s a cancellation form you can complete to terminate your policy and what cancellation fees and surrender fees you might be responsible for as part of your cancellation.

In most cases, there are no fees or penalties for canceling a term life policy. Also, any premiums you have paid will be fully refunded if you cancel anytime during the free look grace period, which lasts anywhere from 10 to 30 days when the policy is first issued. The length of the free look period depends on the provider and what state you live in.

Permanent Life Insurance Cancellation

Permanent life insurance policy cancellation is a bit more complicated because you have options that may make more sense than simply ending coverage. For example, If your policy has an accumulated cash value, you’ll need to decide what you want to do with those funds.

When you cancel a policy, your beneficiaries and family members will be without protection if you die. You may have other sufficient assets that will protect them, but it’s a good idea to take a global approach to your finances and estate when considering cancellation.

If they agree to that arrangement, your beneficiaries can take over your life insurance premium payments. They can pay the policyholder directly or be added as a payer with the insurance company. If you end a policy, it’s always a good idea to discuss your other options in advance or let everyone know afterward so there are no surprises later.

If you’re canceling due to financial difficulty in making premium payments, you can discuss getting a lower coverage amount from your insurance company that better fits your current ability to make payments might be worthwhile.

While canceling a term life insurance policy is easy, you may have to pay a surrender fee if you cancel a whole life policy.

Canceling your life insurance policy isn’t advisable if anyone still needs your financial support. Consider these alternatives to canceling your life insurance policy instead.

Ask for a new medical exam. You could qualify for lower premiums if you’ve lost weight, quit smoking or made other lifestyle changes to improve your health.

Lower your coverage amount. Most life insurance providers let you decrease your coverage amount at least once to help you keep some coverage in force.

Let your policy’s cash value pay your premiums. If you have a whole life policy, you may be able to use the cash value to cover your premiums until you can afford to pay them out-of-pocket. With a whole life policy, a portion of the money you pay in premiums goes to build equity in the policy, which you can draw on while you’re still alive. It keeps the policy’s death benefit intact but gives you the cash infusion you need now.

Sell your policy. This can be complicated, but it’s possible to get offers from reputable brokers or a settlement company who will take a commission acting as an intermediary. While it enables you to get cash, it may take a few months to complete the transaction.

Switching to a different policy is sometimes a viable option.

Consider a tax-free exchange. This is formally called a 1035 exchange and allows you to get rid of one life insurance policy and replace it with a new one without paying taxes. With a tax-free exchange, you surrender your whole life insurance policy. Instead of collecting the money and depositing it into your personal account, you roll it over into a new life insurance policy or an annuity, avoiding income taxes in the process.

Shop for a new policy. Life insurance is a competitive game, and you may be able to find a new insurer with lower rates. Work with a broker to find a more affordable life insurance policy and see if it makes sense to change out your existing policy.

Switch to a reduced paid-up option for your insurance. This option allows you to stop paying premiums in exchange for a lower death benefit. The reduced benefit is based on your already-paid premiums, and coverage lasts for life.

Your finances will change, sometimes dramatically, over your life. Even though you may appreciate the value and protection a life insurance policy provides, there are still times when it makes sense to cancel a policy.

Change in Financial Situation

If you lose your job, get divorced or otherwise experience financial hardship, you may no longer have room in your budget for your life insurance policy. Although some policies give you flexibility to weather these tough times, canceling due to financial hardship is a valid reason to let a policy lapse.

You may realize that your whole life policy investment options are not as good as other financial options for long-term savings. A financial advisor can help you determine if you would be better off with an annuity, mutual fund or other similar investments. Cashing in a whole life policy could give you a nest egg to invest in a higher-interest-bearing account.

Policy Is No Longer Needed

Term coverage is designed to protect you when your death would have the biggest impact on your dependents and loved ones. However, when your major obligations wind down or end, the coverage you need from a term policy may not make sense anymore. If you pay off your home or finish putting your children through college, those major expenses are in your rear view mirror, and you can rest easily without those obligations.

Dissatisfaction with Policy or Provider

Some providers have poor customer service or premiums that are high and out of line with what you can get elsewhere. Life insurance is competitive, and if you aren’t getting a good value and a responsive partner, shop for a better life insurance provider.

You should review the fine print of your policy when you first get it, and again if you’re thinking of canceling it. The policy is a contract and the terms bind you, so it pays to understand the exact steps you must take for a term life policy cancellation and what your options and steps are for canceling a whole life policy.

It is critical you understand the surrender period, surrender values, fees and penalties that could impact how much money you see when taking cash value payouts from a whole life policy. Work with the insurer or your life insurance agent to help you understand all the financial impacts that a cancellation creates.

Methodology: Our System for Rating Life Insurance Companies

Our team researches and ranks life insurance companies using an in-depth scoring system that considers the factors most important to consumers like you. Our analysis includes a comprehensive review of each provider we feature based on available coverage, customizability, availability, customer service and company reputation. Here are the factors we take into consideration when rating life insurance providers:

• Brand trust (40%): Life insurance payouts can exceed $100,000 or more, which makes choosing a reputable and trustworthy insurance provider important. To assess brand trust, we use J.D. Power and Associates customer satisfaction surveys, AM Best credit rating scores and the National Association of Insurance Commissioners (NAIC) complaint index. The higher a company scores in each area, the more points it receives.
• Coverage (33%): The more policy options a life insurance company offers, the more opportunities you have to obtain the right coverage for your specific needs. For this reason, we give companies the most points for offering multiple types of life insurance, including various term, permanent and no-exam options.
• Availability and ease of use (19%): Since life insurance coverage options can be complex, we consider the ways a customer can reach a company — and how easy communication is. For this category, we research how many communication channels a company offers for general customer support, claims processing and the application process. Companies earn the most points for offering various ways to interact with an agent, both in-person and online.
• Riders (8%): Companies offering various life insurance riders or endorsem*nts allow policyholders to better customize their coverage. In this category, we determine how many riders a company offers and award the most points to providers with more than 10 options.