Canceling a life insurance policy can be appealing for many reasons. As you get older, circumstances change. Perhaps your children are now financially independent adults. Maybe you are tightening your budget and need to curb some spending. Or, maybe you are facing unexpected medical costs. These are just a few perfectly legitimate reasons for canceling an insurance policy.
But if you are looking to get a significant amount of money back in exchange for your life insurance policy, canceling your plan might not be the best option. Instead, a life settlement could provide the best value for you. With a life settlement, a third party investor will buy your life insurance policy for a lump sum of cash up front, in exchange for receiving the death benefit down the line. Stick around as we explain the ins and outs of canceling a whole life insurance policy and why a life settlement might be a better option.
Is It a Good Idea to Cancel Life Insurance?
Before getting into the nitty gritty of “how” to cancel a life insurance policy, it’s important to understand the multiple reasons “why” it might be a good idea. Typically, individuals purchase life insurance when they are younger and have dependents to worry about. For example, a family with two children might buy a life insurance policy to help cover the cost of college, the mortgage, and the funeral should anything happen to the parents. As life goes on however, circumstances change. Maybe the house gets paid off, or the children graduate college. Eventually, the need for a death benefit gets smaller and smaller. In an instance where there is no real need for a payout anymore, it might be a good idea to stop paying for life insurance and either surrender it for cash—or take a life settlement.
This is just one potential reason to cancel a life insurance policy. Alternative, perhaps you are facing unexpected medical costs and need to put money towards those instead of paying for life insurance. Similarly, you might decide to cash-in a life insurance policy to fund a few bucket list items. To fully understand what other reasons make it a good idea, it’s best to discuss your goals and needs with a financial professional, like ours at Life Settlement Advisors.
Can You Pull Out of a Whole Life Insurance Policy?
Before you decide to cancel a whole life insurance plan, you can also consider cashing-in or “pulling out” of a whole life insurance policy at any time. Essentially, pulling out of a whole life policy means you are withdrawing your premiums, which are tax-free. Should you try to cash-in more than the premiums you contributed, you will be dipping into the policy’s gains which are subject to regular income tax. However, it’s important to note that withdrawing from your policy, canceling it, and taking the cash surrender are different processes.
Is There a Penalty to Cancel Whole Life Insurance?
There is usually no penalty for canceling a whole life insurance policy. But depending on certain life insurance policy cancellation rules, you might not get any money back. If you are canceling a life insurance policy with cash value, however, you will likely receive a check from your provider for the surrender value.
It’s important to note that the surrender cash value of a life insurance policy is less than the total death benefit. The cash surrender value is less than a life settlement as well. In fact, life settlements can provide four to seven times more value than a cash surrender.
How Do I Get Out of a Whole Life Insurance Policy?
There are a few ways to get out of a whole life insurance policy.
To cancel a policy, simply:
- Stop paying premiums (although this won’t provide a payout)
- Send a “cancel my life insurance policy” letter to your provider
- Be sure to include:
- Contact Info
- Policy Number
- Desired Cancellation Date
- Reason for Canceling
- Request of Written Confirmation of Cancellation
- Be sure to include:
- Call your provider
- Submit a cancellation request form online
To secure a life settlement for your policy, you will need to:
- Have a policy that is over 2 years old with a death benefit of at least $100,000
- Be 65 years or older
- Have a life expectancy of fewer than 15 years
- Have low monthly premiums
- Talk to a life settlement broker
Plan for Your Future and Your Present with LSA
At Life Settlement Advisors, we pride ourselves on offering quality advice and an enjoyable customer experience. With years of business experience, we can help educate you on all of your financial options, including life settlements. See if you qualify, or reach out to us to learn more!