It’s no wonder that so many people are confused about the pros and cons of canceling a life insurance policy, or whether it’s even possible in the first place. That’s because when it comes to exactly what happens when you cancel your policy, the answer isn’t cut and dry. Will the coverage end immediately? Will you be refunded for any premiums that you’ve paid over time? Unfortunately, the answer to those questions is pretty unsatisfying.
Depends on what? Your insurance policy provider, the type of policy you have, and the length of time that you’ve had it all factor in. Some argue that now, while the COVID-19 pandemic is still rampant, it is more important than ever to have an active life insurance policy in place. Yet, many are facing rising daily costs, whether it’s higher gas, food, or housing related expenses. It’s understandable that individuals who find themselves in these situations may look to offload “unnecessary” expenses such as life insurance premiums. And rather than spending all the time, energy and research trying to figure out the potential consequences of simply canceling their policy, an extraordinary number of people just go ahead and take that route, cross their fingers, and deal with the aftermath as it comes.
But at ALIR Settlements, we don’t feel that finger-crossing is an acceptable method of financial planning. We’re here to get you all of the information that you need to understand how cancelling a life insurance policy will impact your financial future, so that you can determine the best course of action for an unwanted policy. Our goal is to nail down the option that’s going to be the most beneficial (and profitable) for you.
We mentioned earlier that one of the factors to consider when it comes to canceling a life insurance policy is the type of policy that you have. Let’s dive into that topic.
How to Cancel Term Life Insurance Policies
If you have a term life insurance policy, then you know that it provides coverage during an agreed-upon “term” of time. This type of insurance is appealing because of the generally low premiums and simple death benefit. And the good news is, cancelling this type of policy is just as simple. In regards to the date that your premium is due, you’ll typically have a grace period of 30 to 60 days if you’re late on a payment. For a term life insurance policy, you can simply stop paying your premiums and let that grace period come and go. Then you can either write a letter, fill out a form on your policy provider’s website, or call your insurer to let them know that you will be canceling your policy. The only way to receive any money back if you decide to cancel this type of policy is if you choose to cancel in the middle of your payment cycle. In this case, you will receive a check for whatever portion of your premium has not already been applied to your account. As you’ve probably guessed, this amount will be peanuts in comparison to the death benefit.
How to Cancel Permanent Life Insurance Policies
If you have a whole life insurance policy, it’s going to take a craftier approach to cancel it and come away not only unscathed, but also on top. These policies are a bit different and more complicated for a few reasons. The first one that people tend to notice is that the insurance premiums are higher. Also, a portion of those premiums goes towards building up equity in your policy. Surrender fees—fees that come into play if you decide to opt out or cancel your life insurance policy—also rear their ugly little heads. Due to the investment component, you may receive a check upon cancellation of this type of policy. However, once those surrender fees are deducted, depending on how long you’ve held the policy, that check might be far less exciting than you may have expected. A policy that is less than ten years old won’t have enough time to build enough cash value to offset those fees and leave you with anything worth writing home about. But even if you do have a mature policy with a high cash balance and are eligible for a decent payout, those proceeds may still be taxable. Many find themselves rather disappointed when going this route after investing so much into a permanent life insurance policy over a long period of time.
A Better Alternative to Canceling Your Life Insurance Policy
Either way you go, nine times out of ten, the results of canceling a life insurance policy are financially disappointing. ALIR Settlements is proud to offer an incredible opportunity as an option to those who actually want to see some of the fruits of their efforts over the years. Many of our clients are excited to find out that both term and whole policies can be turned into cash by means of a life settlement.
In short, a life settlement is a way to turn your unwanted life insurance policy into a lump sum of cash that you can use in whatever way you see fit. If eligible, you’ll receive an offer to buy out your life insurance policy and continue to make the premiums—so the policy will never lapse—and you’ll receive an amount that is less than the death benefit, but higher than the surrender amount. That way, all of the hard-earned money that you’ve invested in your policy won’t be a total loss. In many situations, this is the best option for someone who no longer wants or needs their policy for whatever reason.
Don’t surrender your policy before you contact us to explore the option of pursuing a life settlement. If this is a new concept for you, don’t worry! Life settlements are becoming more well-known as time goes on, but there are still many who are unfamiliar with the process. Our team at ALIR Settlements is happy to answer any questions or explain any terms that you may not have heard of. We want you to have all of the information that you need to make the best decision for your financial future.