Life insurance policies give you permanent protection for your whole life; once you sign-in on the procedure, you are covered for your entire life. There are two primary components attached to life insurance: cash value and death benefit.
A cash value component grows over time with accumulated interest, and the policyholder can borrow or withdraw it during their life. A guaranteed death payout is also given to beneficiaries after the insured person dies. Since life insurance policies provide lifelong protection, the premiums are relatively higher, and the insured person needs to pay premiums regularly to keep the policy in force.
Even though the policy’s future benefits for you and your family look quite appealing, there can be a strong reason to cancel your life insurance policy. Maybe your family needs have changed, and you don’t require lifelong protection anymore, you would want to cancel the policy. Or maybe want to convert your whole life policy to term life policy? Or perhaps you have other sources of permanent income like a pension, and you don’t need the insurance policy anymore. There could be many reasons why people cancel their plans.
Canceling a permanent life policy is a little more complicated than term life, because of the cash value component. But it is not impossible.
You can cancel the permanent life insurance policy at any time while the policy is active, and there are two ways you can do so:
Unlike term life insurance, you can ask for the cash value, which will be given to you when you surrender the policy. While abandoning it, the insurance company may charge a small surrender fee and give you a check.
There is no hard list of rules to cancel life insurance policies, but you need to be mindful of a couple of things when you cancel the policy:
If you’re canceling the policy, you should know what will happen, and your insurance company will guide you best on this.
There are two reasons (primary) why an insurance company may cancel the policy:
If you have a term life policy that provides coverage for only a specific amount of time, 10-30 years, your beneficiaries only get a guaranteed death benefit. A term life insurance policy does NOT have a cash value component, and the death benefit is ONLY given when the policyholder dies.
Upon canceling the policy, the chances are that you will not get a refund on the premiums you have paid, and of course no death benefit for your beneficiaries because you’re no longer protected. So to answer your question, you DON’T get money back when you’re canceling term life insurance.
The same is the case when you outlive your term life insurance policy. If you don’t die while the policy is still active and the term ends, you will not get a premium refund, and your beneficiaries will not get anything either. Chances are you will have to get the policy renewed to keep enjoying the coverage.
However, there is an added feature in this type of policy: Return of Premium Rider (RPR). This is a feature attached to the term life policy, which says that all premiums will be paid to the policyholder in case they were to outlive their term. You get back exactly what you paid (without interest), and the money received isn’t taxable either.
So what’s the catch?
HIGHER PREMIUMS! That’s right. Because of this added feature attached to your term life policy, you have to pay a higher amount of premiums each month. AND if you cancel the term life policy, you will NOT get these premiums back. This only applies if the policyholder outlives their term without revoking it.
Since whole life insurance policies also have a cash value component that grows over time, upon canceling the plan, some amount of that cash value is refunded to policyholders. When you apply for cancellation, you can ask for a refund, and according to the nature of the policy, the insurance company will issue you a check.
This process usually takes just a couple of days to get all the documents before formally canceling the policy. Once you’ve canceled it and received the amount, you will no longer be protected, and if you ever want to be insured again, you will have to go through the whole process again.
Canceling life insurance policies isn’t a complicated process, but it sure has several essential factors that you can’t miss. Every life insurance policy allows policyholders to cancel any time, but not all systems will give a refund or cashback.
Explained in detail in this article, gaining money back from canceling the policy will require a proper documentation process to start and may take weeks until you get a check. The best way to go about this is to have an insurance agent in contact and updated about your situation. These people know the ins and outs of insurance and how it works and will point out loopholes if you’re in any.
If you’re not too keen on canceling the policy, keep paying your premiums on time to maintain the policy and prevent it from lapsing. A lapse in the plan will negatively affect your record and make it harder for you to buy policies next time.
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