So you’ve done the “right thing” your whole life. You bought life insurance for yourself when you got married to protect your spouse, and then increased it again with each kid to ensure everyone is taken care of. You might have purchased another policy to cover estate taxes or one to buy out a partnership agreement. You are now in your later years and you are looking around at all of these life insurance policies that you might not need anymore. Or you might have a premium that keeps climbing and you just don’t want to pay it anymore.
So what do you do now?
How to Cancel a Life Insurance Policy
There are many options when it comes to cancelling a life insurance policy. Let’s look at each option carefully to determine what might be a good fit for you.
1. Surrender the Policy
One option is to simply surrender the policy. If you decide to surrender the policy, you simply contact the insurance company (or your agent) and provide a written request to cancel the policy. If you own a term policy, you will receive a refund for any unused premiums. If the policy has cash value, you will receive the cash value amount, less any loans or surrender charges.
But…before you do that, keep reading. There might be a better option.
2. Lapse the Policy
Another option is to let the policy lapse, which is simply to stop paying the premium. If you pay your premium by automatic withdrawal, you will need to request that your payment information be removed from their system.
If there is cash value in the policy, the insurance company will automatically start applying the cash value to the premium until the cash value is exhausted. If you own a term policy, the policy will be cancelled for non-payment after the determined length of time in your insurance contract.
3. Use the Policy for a Charitable Contribution
You can use a life insurance policy to provide a charitable contribution in a few different ways.
o You could donate a policy that is fully paid for.
o You can gift a policy that requires the charity to continue paying premiums
o You can name the charity as a beneficiary and you as the policyholder continues to pay premiums
In any of these instances, the charity will receive the full death benefit at the time of death of the insured. There are tax implications with these types of transaction, so please contact your tax professional for more information.
4. Reduce the Death Benefit
If you are struggling to pay your premiums but you still want to keep your policy, you might have the option to lower your death benefit. Contact your insurance carrier to see what options you may have with regards to your particular life insurance policy.
5. Trade Your Cash Value for a “Paid Up” Life Insurance Policy
In some cases, you may be able to trade your cash value for a fully paid for policy with a lower death benefit. Depending on your level of cash value, you can get Contact your life insurance company to see if this is an option for you.
6. Life Settlement
Seniors voluntary surrender or lapse over $100 billion in face value of life insurance every year. However, many of these seniors qualify for a life settlement that could turn their policy into money, whether their policy has cash value or not. A life insurance settlement is the sale of a life insurance policy for greater than the cash value, but less than the death benefit.
A few examples…
- A 74-year-old male with a $1,000,000 term policy that had $0 in cash value was able to receive $132,143 for his policy.
- A 68-year-old female with a $500,000 universal life policy with $0 in cash value was able to receive $52,700 for her policy.
- A 89-year-old male with a $1,300,000 universal life policy with a cash value of $275,153 was able to receive $573,000 for his policy
If you are over the age of 65 and you have a life policy worth $100,000 or more that you are planning on lapsing or cancelling, it is worth it to reach out and see if this might be a good option for you. Our in-house consultant has over 30 years of life settlement experience and can help you weigh your different options.
This website includes a solicitation for insurance. No guarantees of life insurance rates or settlement offers are being made to the reader. Life insurance rates or settlement offers are made on an individual basis and are subject to underwriting guidelines.