Cancelling Insurance

It can be easy to see your insurance policy as an expense with no benefit. If you’ve purchased it and never needed it, then you have had the great fortune of health and luck. Cancelling your coverage should not be an impulsive decision and it is important to consider why you want to cancel it and what is at risk if you do.

Do you have enough saved up to cover your final expenses and financial support for your family after you are gone?
Has your health changed significantly since you first purchased the insurance? Changes in your health could result in higher premiums on a new insurance.
Was the coverage for a specific need that is no longer required? Mortgage or debt protection.

Lapse Cancel

Cancel Process

When it comes to cancelling your insurance, you have two options to cancel. You can cancel it outright and the effects are immediate or you can choose to stop paying the premiums and let the policy lapse.

If you choose to cancel your insurance, the process will require you to submit an official surrender request form, a cancellation disclosure form, and the return of your original insurance policy booklet. As soon as the request has been processed from your insurance company, your policy will be cancelled, and any claims will not be covered.

Lapse Process

The lapse process is a little more beneficial if you are on a monthly payment plan as you will still be covered during a grace period which protects you from immediately losing your coverage in case you change your mind. Your insurance provider will issue a notice to pay, a notice of termination, and will usually follow up with an offer of reinstatement. The grace period is 30 days for life insurance and 10 days for accident and sickness insurance. Any claims made during this period would be considered for coverage.

Alternatives to Cancelling

Reduce the coverage amount. If you are close to retirement and paid off some of your debt, you may need less coverage. Less coverage could reduce the premiums.

Temporarily lower your investment savings contributions. Reallocating your monthly payments to your insurance may be an option for you to keep your insurance.

Cash Value. If your insurance is a permanent life insurance plan with a cash value, you may want to check into using the cash value to temporarily pay the premiums.

Healthy Lifestyle. If your health has been status quo since you purchased your insurance, you may be able to apply for new insurance with lower premiums or if your health has improved you may be eligible for lower premiums (a medical examination would be required for both instances).

Refunds

Typically, there are no refunds in insurance. The only exception is during the 10-day recession period when you first received the policy.

Cash Surrender Value

If you purchased a whole life or universal life policy with a cash surrender value there may be a cash value paid out to the policy owner if the policy is cancelled.

Reinstatement

Most insurance companies will consider an application to reinstate a policy within two-years from the cancellation date. Your insurance provider will want to assess your health status, this will be done through a medical questionnaire, checking your medical records from your doctor, or requiring you to take a medical examination.

If the insurance company approves your reinstatement request, you will have to pay the premiums owed from the time it was cancelled and usually with interest.