Life is a journey full of twists and turns. Circumstances change and life goes on, but what about your life insurance policy? In this blog post we aim to provide you with an understanding of what happens when you cancel a life insurance policy.
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Reasons for considering cancellation
When considering cancellation, its important to consider the underlying reasons behind it. There could be a few reasons why you would want to cancel your life insurance policy. Perhaps your financial situation changed. Or maybe you don’t have those listed as beneficiaries in your life anymore. Whatever the case is it is worth it to know what is going to happen if you do.
Alternatives To Cancelling Your Life Policy
Now, before you go ahead and cancel, lets explore some options. With how fast life can change, maybe the people who were dependent on you aren’t around anymore and wouldn’t be financially devastated if you were gone. In this case, its possible to change who your beneficiaries are. They aren’t set in stone and as the owner of the policy you have the choice.
If you are financially struggling to justify the premium, you can often lower the amount in the death benefit. This will lower the premium and you will still have some coverage.
Or maybe your needs have just changed. Your kids are out of the house and your home is paid off. There are other kinds of policies that may suit you better, designed for ensuring and protecting your retirement.
At Heritage, we can help you explore those different options and make adjustments to your current policy to ensure it makes sense to your current life situation. Before you cancel, give us a call and we can talk through these options.
Cancellation can come with financial implications. If you have a simplified term policy then cancellation will mean you stop paying premiums and the coverage ends. Like your auto, if you paid in advance for the whole year, you will get the pro-rated refund back. And perhaps a return of some of the premium that you paid.
With other policies like whole life or any kind of life policy with a cash-value component it gets a little more complicated. It will be up to the terms on the application but commonly you will receive some amount of the cash that built up over the life of the policy. If you have cash value built up on your life insurance policy, check with the life insurance company first, before you cancel. You don’t want to forfeit any cash value you’ve built up by prematurely cancelling your policy. Additionally, if you are considering cancelling your policy because you can’t afford the premiums, check with the insurance company. Many times, if you have cash value built up, it can pay your premiums for you for a certain amount of time.
Post -Cancellation Considerations
Once the cancellation takes place, there’s a few things that should happen. One, plan ahead for what you are going to do with the money you receive back, if any. Consider applying it to another form of financial planning, like towards an emergency fund or retirement savings. You also should inform any beneficiaries that were on the policy. They should know if they aren’t going to be eligible for a future claim. Another aspect to consider is that, should you apply for another life insurance policy in the future, you will not get the same rate you had on your former policy. As you grow older, rates go up. If you plan on getting a life policy again in the future just know it can be considerably more expensive for the same coverage.
All in all, cancelling your life insurance policy should warrant a good amount of thought. There are financial implications, alternatives, and the peace of mind you could lose. I urge you to consult an expert as well. Its not a decision to make lightly. We are here to help and explore options.