Everything you need to know about cancelling your Term Life Insurance policy.
The main purpose of life insurance is to be there for your family in case anything unfortunate happens to you. It is there to support and protect the people depending on you from any costs that might arise after your death. This is especially important for individuals who would be leaving behind young children and spouses that will not be able to make ends meet on their own.
Even though life insurance can be a useful financial tool, it is not the right fit for everyone. Once you have enough savings, investments and home equity, you might not need life insurance to provide for your family. When you set aside funds all on your own to support your family after you are gone, it is known as self-insuring.
So if you think you are in a position where you can self insure, there is no need for you to continue paying your life insurance premiums.
Table of Contents
- 1 When to Stop Term Life Insurance?
- 1.1 1.Retirees.
- 1.2 2.Finances.
- 1.3 3.Questions you should ask yourself.
- 2 How to Cancel Term Life Insurance?
- 3 Do You Get Your Money Back at the End of a Term Life Insurance?
- 4 Final Thoughts
When to Stop Term Life Insurance?
You can stop your term life insurance policies in the following instances:
As you age, the need to maintain a life insurance policy typically diminishes. Many retirees usually end up dropping their coverage after a certain time. But why?
As time passes, people are likely to successfully pay off their mortgages, send off their kids to college until they become financially independent. And while this is happening, the risk of you dying keeps increasing as you age. This means the price of your term life insurance also increases. You can avoid this price increase if you buy a permanent life insurance as it keeps your payments the same over time but with a term life insurance, in situations like such, it seems like a better idea to just drop the coverage and cancel term life insurance.
Once you become a senior citizen and are paying high life insurance prices, it is important to consider if it is worth the benefits life insurance is providing you with. When you have become financially secure once retired, it would not make much sense for you to keep making expensive life insurance payments.
It is important to know your financial situation before you decide to stop your life insurance policy. If you assume you have enough assets and drop your life insurance only to find out later that you do not have enough, there is no going back. If you drop your coverage and then learn that you actually need it, you cannot go back and decide to buy a new policy at a future date as the costs then are more likely to be expensive. And if you have had any significant health changes, you might not even be allowed to qualify for life insurance at all.
This is why it is encouraged by several life insurance providers to make sure that you carefully review your finances and then consider dropping your coverage.
3.Questions you should ask yourself.
There are four important questions you need to ask yourself before deciding when to stop term life insurance.
Do you have children who are still completing their education?
If you have children who are still in school, you might want to reconsider and reevaluate your decision. College costs keep on rising and you should make sure you or your children will have enough to complete their schooling if the income you were providing suddenly stopped.
What would happen to your spouse or domestic partner?
If your spouse or domestic partner is capable of supporting themselves maybe then you can afford to cut off your income stream but if they depend on you, are disabled or unable to earn adequate income, life insurance benefits can be the only thing they are depending on.
Could your family cover up your mortgage costs if you died?
If your family is not able to pay your mortgage payments and other debts after you die, they might be forced to get up and sell their home in order to cover up the costs.
Will your life insurance needs change?
If your life insurance needs are likely to change or you experience a major life event like getting married, having children, getting a new job or getting a divorce, it is important to reevaluate your life insurance needs so that you can get a plan that fits these new needs you have.
How to Cancel Term Life Insurance?
Canceling a life insurance policy is not a hard task. For starters, you can choose to cancel anytime during the free trial which can last anywhere from 10 to 30 days depending on the state you are in. If during that free trial you feel like you may have made a mistake, you can call your insurer and cancel your policy. You will get a canceling term life insurance refund on all the premiums you have made until then.
But after you are already done with the free trial, there are different ways to go about canceling different types of policies.
Term life insurance, which provides coverage for an agreed-upon term such as 20 years or 30 years, tends to have low premiums and a simple death benefit with no investment vehicles within the policy.
To cancel your term life insurance, you only have to do one thing. And that is to simply stop paying your premiums. You can choose to write a letter or give your insurer a call to let them know you want to cancel but this is not a requirement. You can also check your insurer’s website as it might have a form that you can fill out to terminate your policy.
Do You Get Your Money Back at the End of a Term Life Insurance?
If you are wondering whether you would get a return of premium in a term life insurance, the answer is no. The only way you can get money back from a term life insurance policy that does not have any investment option, is if you cancel in the middle of your payment cycle. Only then you would get some money back. You will receive a cheque for the premiums that have not yet been applied to your account. Do not expect a large payout as this will be a small amount compared to the death benefit of a term life insurance policy.
When deciding when to stop term life insurance, you should keep in mind that your life insurance policy is part of a greater financial strategy that is kept in place in order to provide a secure future for yourself and your family. If you think there are better ways to secure your future, you can cancel your policy and invest the money that you would have paid in premiums into a self-insuring vehicle.
There is no right age to cancel your term life insurance policy. However, people typically tend to cancel them when they are older and do not need to have a death benefit for their children. This can be because the children are financially independent and can afford to live without the death benefit too. In situations like such, it would not make sense to keep paying expensive premiums when there is no need for a death benefit. People who are retired and getting older can save the money they would otherwise have paid in premiums for their spouses who might be depending on them. Or save this money for themselves and live their life freely once they are retired instead of paying huge sums of money for a death benefit that nobody has a need for when you could be living a good quality life yourself with that money.