Life insurance is naturally a product that you will hold for a long time, but what happens if your circumstances change?
Part of our mission is to educate the public on how life insurance works so that clients can feel comfortable with their purchase.
Client’s sometimes fear being locked into a purchase that they cannot get out of, which is a valid concern.
Additionally, some clients fear even the best life insurance companies may cancel their policy if they get sick.
Can life insurance be canceled? Yes, life insurance can be canceled at any time by the owner, not the insurance company. If you cancel your policy during the free-look period, your premium refunded when you cancel your policy. Some policies have a cash value that you get after you cancel your life insurance.
Not only is life insurance a reliable and flexible financial tool, but rates have never been lower.
Use our free rate comparison tool to view the rates of the best life insurance companies in the United States with zero obligation to keep the policy if you change your mind.
Our article will discuss the following:
- When Can Life Insurance Be Cancelled By the Owner?
- Can the Life Insurance Company Cancel My Policy?
- Things to Know Before You Cancel Your Policy
- Final Thoughts
When Can Life Insurance Be Cancelled By the Owner?
The owner can cancel life insurance at any point during the application process, and after the policy is put in force.
If you are in the application stage of life insurance, you will withdraw your application from underwriting to cancel it.
There is usually no fee or cost to withdraw your application even if you have already taken an exam with the life insurance company’s chosen examiner.
If you paid for temporary insurance coverage, the life insurance company would typically refund your premiums paid in full promptly.
Once you purchase the policy, however, you may be on the hook for your premiums paid.
Every state has something called a free-look period that can be ten days or longer.
During the free-look period, you can cancel your life insurance policy no-questions-asked free of penalty.
The free-look period gives you plenty of time to review your policy and change your mind.
Even better, the free-look period is not merely a money-back guarantee promised by the life insurance company; it’s state law.
Once you are beyond the free-look period, the life insurance company is no longer obligated to refund your premiums paid.
Whatever premiums you paid previously on your life insurance policy would have gone towards your insurance protection and are usually non-refundable past the free-look period.
However, you are not obligated to pay for any unused future life insurance coverage.
For example, if you bought a 30-year term policy and are in year ten, you will not be forced to pay the remaining 20 years of the policy if you decide to cancel it.
Some policies have cash surrender values, such as whole life insurance.
If you decide to surrender of course.
Can the Life Insurance Company Cancel My Policy?
While the consumer has excellent flexibility on when they can cancel their policy, life insurance companies are restricted on when they can cancel your coverage.
The life insurance industry doesn’t work without trust.
No life insurance company wants to be on the front page of the newspaper withholding benefits to widows and orphans unless they have a good reason.
Tips to Avoid the Life Insurance Company Cancelling Your Policy:
- Work with a reputable life insurance company
- Be honest and upfront about your medical history
- Pay your premiums on time
One reason a life insurance company would cancel your policy is if you don’t pay the bill.
It is vital that you maintain your payments to keep your policy active.
If you miss a payment, the life insurance company will usually give you a grace period of 30-60 days to catch up on your payments before your policy lapses due to nonpayment.
Once your policy lapses, you may need to reprove your insurability before you can reactivate your policy, or even worse, start all over from scratch!
Additionally, every life insurance company has a contestability clause in their contract.
The contestability clause allows the life insurance company to cancel your policy in the first two years for certain things like material misrepresentations.
In other words, if you lied or weren’t truthful about your health in your life insurance application.
If you want life insurance with a pre-existing condition, its best to work with an independent broker who knows what companies will view your condition favorably.
You want to be confident that your life insurance coverage will be there when the time comes.
Things to Consider Before You Cancel Your Policy
There are some things to consider before you cancel your life insurance policy, such as tax liabilities and your future insurability options.
Some life insurance policies grow cash value in a tax-deferred account.
However, once you cancel your policy, you may get a tax bill at the end of the year for any gains that have accumulated in the policy.
Be sure to weigh your options before canceling the coverage.
For example, whole life insurance often has a paid-up surrender option that reduces your death benefit to eliminate your monthly premiums without having to surrender your policy.
This feature preserves your cash value’s tax advantages, a portion of your death benefit, and more importantly, eliminate your bill.
Also, you can access your cash value without having to cancel the policy.
Life insurance companies will allow you to withdraw or borrow your cash value through tax-advantaged loans.
You don’t have to repay the loan if you don’t want to.
The life insurance company will pay it back out of the death benefit proceeds when you pass away.
Another consideration is, are you still insurable?
Sometimes clients will cancel their old policy before they’re approved for the new policy.
No matter how great a deal the new policy sounds, you should never cancel an existing life insurance policy before the new policy is created.
If something unexpected comes up during the underwriting, you could end up paying more for your coverage than expected.
In a worst-case scenario, you can be declined for coverage and have no life insurance at all.
Final Thoughts on Can Life Insurance Be Cancelled?
Yes, life insurance can be canceled by the owner at any point in time, but you want to consider the ramifications of that decision before you finalize the cancellation.
If you cancel your policy within the free-look period, the life insurance company will refund your premiums paid with no-questions-asked.
You can still cancel your life insurance beyond the free-look period, but you likely won’t get any premiums refunded at that point.
If your policy has cash value, there may be other options that preserve the tax advantages life insurance has and eliminate your monthly bill.
Finally, if you’re canceling the policy to purchase new life insurance, don’t cancel the policy until your new policy is active and in force.
Use our free rate comparison tool to compare your life insurance rates with the rates of over 25 highly-rated life insurance companies.
Life insurance is at historic lows so that you may be overpaying for your coverage.