Life insurance isn’t always for life. In fact, in 2018, 92% of policies that came to an end did so without paying a benefit (meaning they were lapsed for nothing in return, or surrendered to the insurance company for their a usually low cash value). While you had a good reason for buying your policy years ago, situations change. Perhaps you’ve paid off your mortgage, and your children are out of college and living independently. Or maybe you bought the policy for estate planning purposes, but due to changes in the law it no longer serves its intended purpose.
Or, maybe you’ve had a downturn in income and are looking for ways to increase your savings account balance, and/or reduce monthly expenses. Since the pandemic began in early 2020, many people have lost their job voluntarily or involuntarily, and they find their life insurance policies unaffordable.
Inflation is also a factor to be considered. Many people are faced with deciding whether to put gas in their car to get to work, cover basic household expenses, or pay life insurance premiums. This is especially true for people on a fixed income.
Whatever the reason, you have every right to cancel your life insurance policy whenever you’d like. However, the process of canceling your policy can be a bit cumbersome since it’s something you probably haven’t done before.
To make cancelation as painless as possible for you, here are the steps you need to take for term life and permanent life insurance policies.
Canceling a term life insurance policy.
Canceling a term life insurance policy is easy. You can simply do one of the following:
- Stop paying your premiums and let the policy lapse
- Call your insurer or write them a letter telling them you’d like to cancel your policy
- Go to your insurer’s website and complete an online cancellation form (if they have that option)
Canceling a whole life or universal life insurance policy.
If you have a whole life or universal life insurance policy, you can also cancel the policy at any time. You won’t get back any premiums you paid for the policy, but you may receive a payout from the cash value, if any has accrued. However, bear in mind there are surrender fees taken from your cash value if you cancel during the early years of the policy. The surrender fees are specified in your policy.
The process of canceling a whole life or universal life insurance policy is very similar to canceling a term life policy – stop paying premiums or notify the carrier. However, when canceling these types of policies, your insurer may offer you several ‘nonforfeiture options.’ These include:
Cancel the policy and cash out altogether. With this option, you take the policy’s surrender value and forfeit future life insurance coverage. This is often the default option if you don’t notify the insurance company and let your policy lapse.
Convert the policy to an extended term life insurance policy. In this case, your cash value is used to buy a term policy with the same death benefit your whole life insurance had. You will lose your coverage when the policy’s term ends.
Take a reduced paid-up option. This option lets you select a lower policy death benefit and make a one-time premium payment equal to your cash value. Since you’ll still have a permanent policy (as opposed to a term policy), your coverage will stay in force the rest of your life and is guaranteed to pay your beneficiaries a death benefit when you pass away.
Selling your whole or universal life insurance policy.
You may have another option instead of lapsing your whole life policy or selecting a nonforfeiture option: sell your policy and receive a lump sum payment. This option is called a life settlement.
With a life settlement, a third party will pay you cash for your policy.
The settlement amount you’ll receive depends on several variables, including your age, health condition, and policy’s face amount. In the past, only people with impaired health could qualify for a life settlement, but because of innovation in the industry, today even healthy people may be eligible, depending on several additional factors. Most payouts are greater than the cash value of the policy and less than the policy’s death benefit.
Life settlement investors are most interested in dealing with individuals over age sixty and selling a whole life or universal life policy with a face amount of at least $100,000.
If you would like to learn more about selling your universal or whole life insurance policy and receiving a life settlement payout, simply complete a short online form to see if you may be eligible, then speak with one of our life settlement experts to begin the information gathering process. Soon after that, we’ll let you know if we’re able to make an offer to purchase the policy.
And remember – if you qualify for a life settlement, it will ALWAYS pay you more than canceling your policy for no value in return.
