For many Americans, life insurance is a staple in their financial plans. Still, life situations change, and economic changes happen around us all the time. Suddenly, you find yourself asking, “How do I cancel a life insurance policy?”
If you’re ready to cancel your life insurance policy, or if you’re wondering if this is the right time to do so, the experienced team at Einsurance.com is here to help.
Our licensed life insurance agents have the information you need about life insurance, and this article aims to present it in an unbiased way. You can skip ahead to the most important information for your unique needs; we’ve listed common topics below.
This article explores:
First things first, if you’re sure that you’re ready to cancel a life insurance policy right now, let’s get it done.
How to Cancel a Life Insurance Policy ASAP
The fastest, easiest way to cancel a life insurance policy right now is to pull out your policy, call the toll free number found somewhere near the top of the document, and ask for a cancellation.
The insurance representative with whom you connect will likely need to verify your identity. They will ask about your:
- Name
- Address
- Birth date
- Policy number
- Social Security number
- Driver license number
- And a reason for cancellation
And, depending on the size of the death benefit, the company you’re dealing with and ever-changing state laws, you may need to sign and return some paperwork to the insurer, especially if you’re cancelling a whole life policy with a significant cash value.
It’s all fairly straightforward, unless you’re dealing with some common problems (like a sold policy.) We’ll address those sorts of issues shortly.
Now you’re thinking, “Cool story. But I don’t have the paperwork handy. Can I still cancel an insurance policy?”
Yes. You can cancel your life insurance policy without the policy documents, but you’ll have more legwork.
How to Cancel a Life Insurance Policy if You Don’t Have the Paperwork
Contacting the Life Insurance Company
Start by contacting the life insurance company. You might spend some time on hold and be passed around to several representatives before they can help you find your policy.
If you’re not sure which company you work with, or if you have several, you’ll need to do some detective work and dig through your financials.
Use Payment Records to Find an Insurer
Some folks use online banking and online bill pay options to save time and hassle. If your life insurance premiums were automatically deducted from your accounts, they should be easy to find.
Look for premium payments coming out of:
- Checking accounts
- Savings accounts
- Joint accounts
- Credit cards
- Your spouse’s credit cards
And in some cases, your premiums might be paid directly from your paycheck; so be sure to check your paystubs. Your HR department may also be able to help you find an insurer, their phone number and a policy number.
Pro Tip: Most life insurance premiums are paid monthly, but insurers can also accept premiums annually or quarterly. Be sure to check statements over multiple months.
Once you have a company name, search for them on the internet and use their contact information to start the cancellation process. Again, you may need to provide some proof of identity and sign papers by hand.
Common Challenges You May Face When Canceling a Life Insurance Policy
Thus far, we’ve covered how to cancel a life insurance policy by reaching out to a company. But what if you’re dealing with a more complicated situation? Sometimes, insurance companies sell their book of business to other insurers.
What if Your Contract was Sold Among Insurers?
Life insurance companies buy and sell life insurance risk all the time!
As a consumer, you won’t experience much difference in coverage or price when this happens, because you’re locked into a contract.
But if you lose your policy documents, it can become a hassle when contacting an insurance company for cancelation.
If your contract has been sold, or if your original insurer has gone out of business, you might struggle to cancel your life insurance policy directly. The good news is: if you stop paying premiums, the policy will get canceled eventually.
If You Stop Paying Premiums, Your Policy Will Eventually be Canceled
One sure way to cancel a life policy is to stop making the payments. But this method should be your last resort.
Is This a Whole Life (a.k.a. Permanent Life Insurance) Policy?
Before you stop paying for life insurance — in effort to cancel it — you need to know if you have term life or whole life coverage.
Different types of life insurance provide different benefits, and one benefit of a whole life policy is a cash value that builds over time.
If you stop making payments on a whole life policy, the insurer will deduct those missing payments from the cash value, before they cancel a policy.
In this instance it’s especially important that you contact the insurer first to cancel. Otherwise, you’re losing money. That cash could come in handy if you’re dealing with financial stress.
Cash-in or Sell Your Whole Life Policy
If you’re dealing with financial stress, you may choose to cash-in your permanent/whole life insurance policy and collect the cash value. Depending on how long you’ve had this policy, and how much you’ve paid into it, you may be collecting a nice lump sum.
Another choice is to sell your whole life policy to a life settlement broker. These individuals are licensed to buy life insurance policies. They’ll keep paying the premiums, and when you pass away, they’ll collect the death benefit. (If you’ve ever heard the term “hedge funds” and wondered what it meant, now you know!)
Life settlement brokers will probably offer you a better sum than the cash value, because they’re hoping to collect the complete death benefit amount in the future.
For instance, if you have a cash value of $10,000 on a $100,000 whole life policy, a life settlement broker might offer you $25,000 to buy it. They’ll still net $75,000 when you pass away.
Stopping Payments on Term Life Insurance
Term life insurance policies do not create a cash value.
If you have a term life policy, simply stopping payments shouldn’t have any negative effects, except as a cancelation for non-payment recorded in your insurance history.
In the future, insurance companies may consider that when creating your rates for other insurance products.
Ultimately, your best plan is to contact the insurer directly and cancel this policy. But if you cannot find contact information anywhere, and you’ve spent days on hold being passed around from one insurer to the next, this might be your only possibility.
Another common challenge people face when canceling a life insurance policy is discovering they don’t own the policy. In this situation, there’s not much one can do.
You Must Own a Policy to Cancel It
As insurance agents, sometimes we get asked to cancel life insurance policies by insureds who don’t own the policies.
There are many reasons this could happen, like divorce, legal separation of domestic partners and family infighting.
If you don’t own a policy, you cannot cancel it. For example, imagine a wife — Mrs. Smith — who takes a life insurance policy out on her husband, Mr. Smith. Five years later, they got divorced.
Since Mrs. Smith is the owner of the policy, and she’s made premium payments on time all these years, her husband cannot cancel the policy, even though his life is insured, and even though they’re getting divorced.
This leads nicely into our next topic, on who can cancel a life policy and other cancellation rules.
Who Can Cancel a Life Insurance Policy? (and Other Life Insurance Cancellation Rules)
The owner of the life insurance policy, and the insurance company, are the only two entities that can cancel a life insurance policy.
This can be confusing for consumers, so let’s define some parties involved.
- The Insured: this is the person whose life is insured. They can be the owner of the policy, but often they are not.
- The Beneficiary/Beneficiaries: this is the person (or people) who will collect a death benefit when the insured passes away. Sometimes they own the policy, but not always.
- The Policy Owner: this person often initiated the life insurance purchase, and usually pays the bills. They may also be a beneficiary or an insured.
Let’s think back to our example of the Smith’s divorce, above.
Often, one spouse will buy life insurance on another, and make the children beneficiaries of the policy. Again, only the policy owner can cancel the contract or collect a cash value.
Policy Owners Can Make Other Important Choices, Too
In addition to cancellation, policy owners can:
- Make changes to beneficiary names and designate amounts
- Increase coverage or buy riders/endorsements
- Change information on a policy, like mailing address and contact information
For example, imagine the Smith family has reconciled. They choose not to get divorced, and Mrs. Smith gets pregnant again. As the owner of this policy, she can add the new baby as a beneficiary of the death benefit.
The insurance company might contact her occasionally and upsell policy riders. (These are extra bells and whistles that can be added to a policy.)
From time to time, they may offer things like double indemnity for accidental death. In which case the death benefit would double if Mr. Smith dies in an accident. Or, they may offer more term coverage at reduced rates.
As the policy owner, only Mrs. Smith can make these changes.
Now that we’ve thoroughly discussed how to cancel a life insurance policy, let’s think about whether this is a good choice.
“Should I Cancel a Life Insurance Policy?”
Many consumers consider canceling their life insurance when finances get tight. If you’re wondering, “Is this the right time to cancel my life insurance policy?” We’ll help you decide.
Is it a Whole Life Policy or Term?
Again, the type of policy you have is the most important detail to know. A whole life policy may have a significant cash value.
If you’re struggling financially at the moment, you could:
- Cash out the whole life policy and collect the cash value
- Sell the policy to a life settlement broker for a larger lump sum
- Borrow some of the cash value and pay it back right away (you will be charged significant interest, but this could help you through an emergency if you expect money in a few weeks, like a tax return)
- Stop making payments on the policy, so the premiums would come out of your cash value, until you get back on your feet. This would lower your cash value but also reduce your monthly bills temporarily. Just remember to start paying premiums again when you can.
What if I’m Not Struggling? Should I Cancel My Whole Life Insurance Policy?
Now, some people choose to cancel their whole life insurance because they no longer need the coverage. For example, maybe you’re 60 years old, your mortgage is paid, your adult children are all doing very well financially, and you’d like to take a lump sum and travel Europe for a year.
That’s fine! We’d suggest you make that transaction through a life settlement broker to get the most money possible. Just do an internet search for “life settlement brokers in [your city.]”
Cancelling Term Life Insurance
Term life insurance premiums are usually smaller, ranging from $20 to $150 per month. And sometimes that extra $25 or $50 a month makes a big difference!
If your financial struggles are at the extreme, emergency point then it’s probably a good idea to cancel your term policy. Things like groceries, baby formula and prescription medicine must come first.
But remember, when you try to buy term life insurance again, your rates will likely be higher because you’re older.
So, consider your budget carefully. Maybe there are other cuts you can make before cancelling your life insurance. For instance, Forbes magazine says most Americans are spending $46 per month on online streaming services.
Get Quotes on Other Insurance Products to Save Money
Finally, remember that one way to save money is to shop around for insurance. Rather than cancelling your life insurance policy, you might be able to save on auto, home or an insurance bundle package. We invite you to try our handy online quoting tools to find out.