You may have any number of reasons for wondering “Should I cancel my life insurance?” Maybe:
- The premiums are too costly to maintain
- You’d rather put the money towards a retirement plan
- You simply don’t want or need the policy anymore
Any of those are a good reason to cancel a life insurance policy. But that then begs the question: What will it cost? Will you be losing money by forgoing a life insurance policy?
The short answer is “typically, no”—but that depends on a few factors. What kind of life insurance policy do you have? How long have you had the policy? And what are your reasons for canceling? In most cases, canceling a life insurance policy won’t cost any money. If anything, by spending less on premiums you will be gaining money—money you can use for any number of other things. But before you request cancellation, it’s important to understand what options are available that can net you even more of a payout. Read on to learn how canceling affects different policies, what happens to your money, and why selling your life insurance may be a better alternative.
If I Cancel My Life Insurance, Do I Get Money Back?
That depends on what kind of policy you have, and how long you’ve had it. To answer this, let’s look at two common types of policies: whole life insurance and term life insurance.
Canceling Whole Life Insurance
Whole life insurance comes with the benefit of having a cash value. Your policy’s cash value is an amount that you’re able to take out loans against, and it also ensures you will receive some money back when you cancel. Keep in mind, though, that if you have an outstanding loan when you cancel the policy, that will subtract from your payout. Regardless of how much your cash value is, insurance companies will keep a portion of your premiums as a cancellation fee, and you will not get back the money for premiums you already paid.
How much do you get back if you cancel whole life insurance? That depends on how long you’ve had the policy, and whether you’ve taken out a loan against it. The longer you have been paying into your policy, the more money you will get back. The insurance company will also subtract a surrender fee from your payout if you cancel without notice. This is why in most cases, selling your life insurance policy for a life settlement is a better option if you want more money back. Whether you have whole or term insurance, the payout from a life settlement is often 4 to 7 times higher than the payout for canceling.
Canceling Term Life Insurance
Unfortunately, term life insurance does not accrue a cash value, so unless you paid ahead on your premiums, you will typically not receive a return on your money. You will usually only get money back when canceling a life insurance policy with cash value. However, you can still get a cash payout by selling your life insurance through a life settlement. This is an especially great alternative for a term policy, where you would otherwise not receive any money for your policy.
As a final note, you may not receive money back if there are circumstances surrounding your policy that would forfeit your payout. This includes (but is not limited to):
- Not giving your provider any notice
- Lying on your initial application
- Not having the policy for long enough
Is It a Good Idea To Cancel Life Insurance?
There are many cases in which canceling a life insurance policy is a good idea. However, in most of those cases, a life settlement may be a better idea. While canceling will give you back the money you’d typically spend on monthly premium payments, you will not get back the money you paid into the policy. A life settlement gives you a way to get back that money and, in some cases, more.
Regardless of your situation, selling your policy for a life settlement provides a lot of benefits. In addition to doing away with monthly premiums, you will have more money to use for the things you actually want—whether that’s a happier retirement, simpler finances, or just more money to spend in the here and now. Additionally, a life settlement will get you more money back than canceling your policy, regardless of the type of policy you have. Companies like Life Settlement Advisors can work with you to determine the best course of action for your policy and how you can maximize your payout.
Life Settlement Advisors: Better Planning, Better Future
If you’re 65 or older and have a life insurance policy, you should consider a life settlement. Whether you want more money for retirement, more financial freedom, or simply don’t need the policy anymore, Life Settlement Advisors is here to help you take the next step forward. Check out our qualification calculator to see if you qualify for a life settlement, or reach out to us for a consultation.