Canceling a life insurance policy can be a smart decision if your coverage no longer works for you. Whether your reasons for canceling an insurance policy are because of large premium payments or if you’d like to have financial security for yourself or your family in times of need, it’s good to understand what cancelation actually means. In this blog, we’ll discuss termination of insurance contracts and answer questions like “Can I cancel my insurance policy and get my money back?” Let’s start with the different kinds of cancelation for life insurance policies.
What Are the Types of Cancelation in Insurance?
When the policyholder of a life insurance policy is no longer able to pay premiums or no longer needs life insurance, a policy can be canceled by either the policyholder or the insurance company. This can come in the form of a formal cancelation, non-payment, surrender, or settlement.
- Policy Cancelation: When the policyholder decides to end the life insurance coverage it’s known as policy cancelation. The policyholder might be able to terminate the coverage at any time, although doing so before the policy’s term is out may result in costs or penalties.
- Non-Payment Cancelation: When the policyholder doesn’t pay the required premiums, the insurer may revoke the insurance from the policyholder. When this occurs, the insurer will normally send a cancelation notice to the policyholder; if the unpaid premiums are not paid within a certain time frame, the policy will be canceled.
- Surrender Cancelation: When the policyholder surrenders the insurance policy to the company in return for a cash payment—the surrender value—it’s known as a surrender cancelation. The insurer is then released from future responsibility to the policyholder, and the policy is canceled.
- Life Settlement: When the policyholder sells their life insurance policy to a third party in return for a cash payment—4-7 times more than the surrender value—it’s known as a life insurance settlement. If the policyholder qualifies, the third party then takes over premium payments and collects the death benefit when the policyholder dies.
It is important to remember that depending on the insurer and the kind of policy, the terms and circumstances of policy cancellation may differ. To understand the cancellation provisions and associated penalties, you should carefully read your policy documentation and consult a financial professional.
Can You Cancel Your Insurance Policy At Any Time?
Depending on your policy, you should be able to cancel your life insurance when it makes the most sense for you. There might be certain rules for canceling a life insurance policy that should be laid out in your contract. One important thing to keep in mind is that you typically aren’t eligible for certain kinds of cancellation, like surrendering, within the first few years. For instance, if you have a whole life insurance policy, you could have to pay costs or surrender charges if you decide to discontinue the coverage. But cancelation might not always be the right answer for you. This is especially true if you don’t receive enough cash from the surrender value or have term life insurance without any cash value at all.
Life insurance settlements might make the most sense if you want a cash sum in return for your insurance policy. You’ll no longer have to pay the premiums and will receive more cash than you would with a surrender. A more lucrative payout makes a big difference if you have unexpected expenses, medical bills, or just want to set your family up for success in case you pass. Working with a broker like Life Settlement Advisors can get you in touch with a third party who will purchase your life insurance policy from you if you qualify. You will be informed about the value of your insurance policy before you agree to any transactions with a buyer, so you can have the peace of mind that you got the most out of selling your policy.
Can I Just Let My Insurance Cancel?
Yes, you can let your insurance cancel through non-payment, but you might receive fines for the lapse in payment. Of course, it is best to make any decisions on cancelation by reading through your policy with a financial professional who will help you cancel your policy in the most efficient and cost-effective way.
If I Cancel My Life Insurance Do I Get Money Back?
If you have permanent life insurance—like a whole or universal policy—you can get money back when you cancel your life insurance policy. The cash value of permanent types of plans builds up over time, and you could be eligible to collect it if you surrender or cancel the policy. However, if you decide to cancel the insurance, there can be fines or surrender costs involved, and you might get less money than you spent on premiums overall.
Term life insurance policies, on the other hand, have no cash value and therefore you would receive no benefit from canceling. Term life insurance policies only offer coverage for a certain amount of time. When you cancel a term life insurance policy, you simply stop paying the premiums, and the coverage expires.
To fully understand the terms and conditions of canceling the policy, as well as any potential refunds or fines linked to cancelation, it is crucial to carefully review your life insurance policy documentation with a financial professional.
What’s the Best Way to Get Cash Back for My Life Insurance Policy?
If you want the most out of your life insurance policy, it might be best to consider a life insurance settlement. If your finances can no longer sustain your monthly premium payments or if another source of income makes the benefits of your policy unnecessary, selling your life insurance policy could be the best way to get cash. At Life Settlement Advisors, if you qualify, we work with buyers who will compensate you for your life insurance policy for a cash sum. We wish to empower senior citizens, their families, and their financial advisers with the information they need to review their life insurance policy and consider life settlements as an option. Visit our website today to try our qualification calculator and see if you’re eligible to apply.