How to Cancel Life Insurance
There are many reasons why you many need to cancel life insurance for yourself or a loved one. You may no longer have the funds to pay for the policy.
You may want to cash out the money that you have put into the policy, or you may want to cancel a policy with one company so that you can purchase a new policy with a different company.
Whatever the reason, cancelling your policy is an easy business transaction that can be handled simply and professionally.
Researching How to Cancel
Visit the company’s website. If you have a policy with a large national or regional insurer, then it should have a website. Visit the company’s website and see if they have information about cancellation.
You can find a website address on any piece of correspondence that the insurer has sent you. Or you can search on the web: type the name of your insurer into your favorite web browser.
Look in the Frequently Asked Questions sections to see if there is information about who to contact.
Contact a broker. Before cancelling your life insurance policy, you should contact an experienced broker to ask any questions you may have about your decision to cancel.
Even if you know for sure that you are going to cancel your policy, it is good to have someone to talk to about your choice who is an expert in life insurance issues.
If you do not have a broker already, contact your life insurance company to set you up with someone.
Finding a broker through your insurance company will insure that you work with a broker who is properly licensed and who is recommended by experts.
Meet with an accountant. There can be tax consequences of cancelling a policy. Whole and universal life insurance policies build up cash value through excess premiums and earnings.
When you cancel, the insurance company cuts you a check for this amount. This money may or may not be taxed.
Only an experienced tax professional can answer questions about the tax consequences of cancelling life insurance.
Research partial withdrawal policies. If you have a universal life insurance policy, you may be able to withdraw some of the cash value from your policy without cancelling out of the policy altogether.
Doing so would free up some of the cash for you to use, but you would still have money in the policy in the event of your death.
However, taking a “loan” from your life insurance policy can have consequences, so make sure to speak with your broker before taking this option.
For example, some policies will reduce the amount of the death benefit and will not allow you to repay the loan to raise it again.
Additionally, in some circumstances, you could pay a tax on the amount that you take out of the policy.
Ask about the consequences of cancelling. You may have to pay a cancellation fee or penalty. Also, the policy may state that some of the money that has accumulated in the insurance policy may be returned to you.
Look at your life insurance policy. It should include a clause detailing the cancellation fee or penalty. If the policy will return money to you upon cancellation, then the fee or penalty will be deducted from it.
Some newer life insurance policies include a cancellation clause in which the penalty decreases over the life of the policy. In other words, the longer you have had the policy the lower your penalty will be.
Try to keep the policy. If you want to cancel because of a temporary job loss or because your employer has stopped paying premiums, then consider if there is any way to continue making premium payments.
You could pull money from other parts of your budget or get a part-time job.
Also talk with your insurance company. Some companies might let you reduce the face amount of the policy, thus lowering your premiums. Also, you may be able to use some of the plan’s cash value to cover premiums.
Cancelling the Policy
Follow the official procedure. The company will probably have a form for you to fill out.
It will ask for personal information as well as information about your policy. Complete it as soon as possible and send it back.
Keep a copy for your records. Should the company not process it, then you will need to send the copy into the company to remind them.
Put everything in writing. If you need to ask the life insurance company questions, try to do so in writing. For example, if you are unclear about how a penalty will be calculated, you should ask this in writing.
Questions asked in writing are more likely to receive a response in writing. Documentation comes in hand should a dispute arise between you and the insurer.
Cancel automatic payments. You may have paid premiums automatically through your checking account or with credit card. You should cancel these automatic payments by contacting your bank or credit card company.
Contact the bank at least 3 business days before the scheduled withdrawal.
You may request cancellation by phone. However, the bank could require that you follow up with a request in writing. If the bank does make this request, then the verbal cancellation becomes ineffective after 14 days.
Follow up. If you continue to receive invoices for premiums, write a letter to the insurance company, including a copy of any documentation you retained when you cancelled the policy.
If a premium is erroneously deducted from your checking account, ask for a refund in writing.
Finding Another Insurance Plan
Start early. If you intend to have a more affordable policy, then you should have a second policy in place before you cancel your first one.
The amount of time to process a life insurance application varies from 15 minutes to 2 months. You should give yourself plenty of time.
If you have to undergo a medical exam or submit medical records, then you should account for that as well.
Getting a complete set of medical records can be cumbersome as offices are overwhelmed with requests for copies of records.
Get quotes. If you cancelled the insurance policy because it was too expensive but still want coverage, then you will need to find affordable insurance. You should contact a broker or visit the websites for major insurers.
You can look into “term” life insurance. Term life insurance often has lower premiums because it is in effect for only a specific amount of time, during which you pay the premiums, whereas whole life insurance is in effect for the entirety of your life, even after the premiums have been paid.
Term life insurance is recommended for those under 40 or those who do not have sufficient income to pay for whole life insurance.
Apply for a policy. Gather the paperwork and fill it out. Keep a copy for your records and mail the original back.
Also schedule any required medical exam and request medical records.
You should receive confirmation within a month.
