How to Cancel Your Life Insurance Policy

The process of canceling life insurance varies depending on the type of policy you hold. Canceling term life insurance is simple; just stop paying your premium and notify your insurer by letter or phone. Additionally, check your insurer's website for a possible termination form you can complete online. Canceling whole life insurance entails considering additional factors, such as the policy's cash value. Initiating whole life insurance cancellation might lead to cancellation fees or other financial implications.

Before proceeding, you must understand the life insurance policy cancellation rules and any potential repercussions. Determining the reasons for canceling your life insurance policy and consulting a financial advisor, if necessary, can also ensure a well-informed decision.

Canceling term life insurance is straightforward — you simply inform your insurer and stop your payments. You can initiate life insurance cancellation at any point during your contract.

If you cancel your life insurance policy within its free look period, you can get a full life insurance refund. This period can last anywhere from a week to a month or more, depending on the insurer and regulations in your state. Before purchasing any life insurance policy, you can ask the provider about the length of their free look period.

The following steps will depend on whether you are canceling term life insurance or whole life policy and when you decide to cancel. Familiarizing yourself with the life insurance policy cancellation rules is essential, as these rules outline the process and any potential consequences, such as refunds or charges for canceling life insurance.

Canceling a term life insurance policy is easy and can be done in three ways.

1. Stop paying your premiums

You can simply let your policy lapse by not paying your insurer. Your policy will be terminated after your policy’s grace period, which typically lasts 30 to 31 days after your previous payment date.

2. Send a letter to your insurer

Sending a written notice or life insurance cancellation letter is a quick and easy way to let your insurer know you want your policy to be canceled. Here is a sample letter to cancel a life insurance policy:

Your insurer may also provide an online form for how to cancel term life insurance. Additionally, they can guide you through the cancellation process, whether you prefer to complete it online or over the phone.

3. Inform your insurer over the phone

Some insurers may have a hotline specifically for canceling life insurance, where they can start the life insurance cancellation process or complete it immediately. You can find this on their website.

There are often no penalties or fees associated with discontinuing your coverage.

Canceling a permanent life insurance policy, including whole and universal life, can be complex, as it includes a cash value component. Unlike a term life policy, whole life policies include a nonforfeiture clause. The policy stipulates that you can receive full or partial benefits or a partial refund of your premiums after nonpayment. What you can receive depends on your insurer.

1. Surrender or cash out your policy

Whole life policies have a cash value component. If you withdraw it during your policy’s surrender period, which is a few years after your policy’s inception, you may have to pay steep surrender fees or not receive any cash value. If you take out your cash value after your surrender period, you will likely receive some of your funds but may still need to pay a surrender fee. Your policy will be terminated once you take out your cash value.

2. Sell your insurance

An insurance policy is an asset, which means you can sell it off like other assets. If the life insurance policy cancellation rules are too complex and you want a straightforward solution, you can sell it or undergo a tax-free exchange. Do some research and contact a reputable broker. Once you sell your policy, the third party will receive the death benefit upon your passing. While selling is straightforward, a tax-free exchange or 1035 exchange lets you trade your life insurance for another product of similar value without any tax implications.

3. Let it expire

Some insurers automatically terminate and cash out your policy if you stop making payments. Others use your cash value to fund premiums until there is nothing left. However, both avenues are still subject to surrender fees and taxes.

4. Choose a reduced paid-up option

Some insurers allow you to stop payments and keep the policy in exchange for a lower death benefit. However, this will depend on the premiums you’ve paid. Contact your insurer to ask if they offer this option.

Remember that the exact life insurance policy cancellation process and what you can receive depend on your insurer's policies and the life insurance policy cancellation rules they adhere to.

The outcome of surrendering your life insurance policy will depend on whether you do so during or after the surrender period. The surrender period is the amount of time you must wait to withdraw your policy's cash value without fees or penalties. How long this lasts depends on your insurer.

• During the surrender period: If you attempt to cancel your life insurance policy and withdraw your funds before your surrender period ends, your insurer may refuse to give you the cash value or impose severe penalties. This is a key consideration when deciding whether to cancel a life insurance policy.
• After the surrender period: Once the surrender period has passed, you can safely withdraw your cash value and cancel the life insurance policy without being subject to a penalty. At this stage, you may also be eligible for a canceled life insurance policy refund based on the policy terms.

Understanding when to cancel life insurance and the conditions of the surrender period can help you decide whether to cancel whole life insurance or continue coverage. For many, a money-back life insurance option becomes possible after the surrender period, while canceling a life insurance policy early can lead to substantial losses. Canceling term life insurance offers more flexibility, allowing for cancellation at any time without financial repercussions.

There are various good reasons to cancel life insurance, such as affordability concerns, finding more suitable coverage, changes in life goals and needs or shifting to more aggressive investing strategies.

It’s important to consider the main reason for canceling your life insurance policy and think long-term. After all, depending on the insurer, you may end up with less than you invested.

Canceling a life insurance policy comes with few guarantees that you will get your money back. However, there are exceptions:

• When you cancel during the free look period: All policies come with a free look period, which is a timeframe at the beginning of your policy when you can change your mind and get your money refunded completely. How long this free look period is will depend on the insurer and the state.
• When you are in the middle of a billing cycle: If your free look period has ended and you decide to cancel the life insurance policy in the middle of a billing cycle, an insurer might only offer a pro-rated refund of your premium for the time between your cancellation date and your next payment date. The insurer will not refund any other premiums.

Remember that life insurance policy cancellation rules can vary from insurer to insurer. Before applying, ask your agent what the rules are for cancellation and the likelihood of you getting your money back.

If you aren’t sure about whether you want to cancel your life insurance policy or not, know that you have alternatives. Exploring these alternatives can help you decide what’s best for you.

Learn more about canceling life insurance by reviewing our answers to some of the most frequently asked questions.