How to Cancel a Life Insurance Policy

Canceling a term life insurance policy is straightforward. It usually doesn't involve penalties or fees.

You have three options:

1. Stop paying premiums

You can let your policy lapse by not paying your insurer. Your policy will end after the grace period, usually 30 to 31 days after your payment due date.

This approach requires no paperwork but isn't always the cleanest way to cancel. Your insurer may continue sending notices and potentially report the lapse to credit agencies if you have automatic premium loans or other policy features.

You may not receive confirmation that your policy is officially canceled, which could create confusion later. If you choose this method, contact your insurer after the grace period expires to confirm your policy has been terminated and request written confirmation for your records.

2. Send a letter to your insurer

A written notice is a quick way to let your insurer know you want to cancel. When sending your life insurance cancellation letter, use certified mail with a return receipt requested. This creates a paper trail proving your insurer received your cancellation request on a specific date.

Keep copies of your letter, the certified mail receipt and the return receipt in your records. If you don't receive written confirmation within two weeks, follow up with a phone call to verify your cancellation was processed.

Your insurer may also provide an online cancellation form. They can guide you through canceling term life insurance, whether you prefer to complete it online or over the phone.

Some companies may require you to complete their specific cancellation form rather than accepting a general letter, so check your policy documents or contact customer service to confirm the preferred method.

3. Call your insurer

Some insurers have a dedicated cancellation hotline to process your request immediately. Check the insurer's website for the number.

Phone cancellation offers the fastest resolution, often allowing you to cancel your policy within minutes. The customer service representative can answer questions about refunds or final payments and provide immediate confirmation of your cancellation.

After the phone call, request written confirmation of your term life insurance cancellation via email or mail. Keep detailed notes of your conversation, including the representative's name, the date and time of your call and any confirmation numbers provided.

Canceling permanent life insurance, including whole and universal life, is more complex because these policies build cash value. Unlike term life policies, permanent policies include a nonforfeiture clause. This clause means you can receive full or partial benefits or a partial refund after nonpayment. What you receive depends on your insurer.

1. Surrender or cash out your policy

Whole life policies accumulate cash value over time. If you withdraw during the surrender period (typically the first few years), you'll pay steep surrender fees or receive no cash value. After the surrender period, you'll likely receive some funds but may still pay a surrender fee. Your policy ends once you withdraw the cash value.

2. Sell your insurance

Your policy is an asset you can sell to a third party. If cancellation seems too complex, selling offers a straightforward solution. Research and contact a reputable broker. The buyer receives the death benefit when the insured passes away. A 1035 exchange lets you trade your policy for another financial product without tax implications.

3. Let it expire

Some insurers automatically terminate and cash out your policy if you stop paying. Others use your cash value to cover premiums until it's depleted. Both options may involve surrender fees and taxes.

4. Choose a reduced paid-up option

Some insurers let you stop payments while keeping the policy active with a lower death benefit. This depends on how much you've already paid. Contact your insurer to see if they offer this option.

The exact process and what you receive vary by insurer and policy terms.

The outcome of surrendering your policy depends on timing. The surrender period is how long you must wait to withdraw your cash value without fees or penalties. This period varies by insurer.

• During the surrender period: Your insurer may refuse to give you the cash value or impose severe penalties if you cancel before this period ends.
• After the surrender period: You can withdraw your cash value and cancel without penalties. You may also be eligible for a refund based on your policy terms.

Know the surrender period timing to decide whether to cancel or keep your coverage. Canceling early often leads to substantial losses, while waiting until after the surrender period gives you more options. Term life insurance offers more flexibility since you can cancel anytime without financial penalties.

The life insurance cancellation process depends on your policy type and timing.

Canceling term life insurance is straightforward: stop paying premiums and notify your insurer by letter, phone or online form. Canceling permanent policies like whole life insurance is more complex due to the cash value component. You may pay surrender fees or experience other financial consequences.

Consider your reasons for canceling and consult a financial advisor if needed.

We answer common questions about canceling life insurance.