Cancelling your life insurance policy can be quick and easy. However, you should think carefully before doing so, as the benefits of having it in place can often outweigh the benefits of cancelling.
In this guide we take a look through the reasons for and against cancelling your policy. We’ll also explain how to go about cancelling, and some alternative options (for when money is tight).
Reasons for Cancelling
The primary reason that people cancel life insurance is simply that they can’t afford to pay the premiums that the policy requires. If this is the case for you, it’s important that you think very carefully about how much it’s costing you now and how much it could cost your family not to have your policy in place should you pass away. It’s easy to neglect, but a life insurance policy can relieve your family of a huge financial burden in the event of your death. If money is tight, see below for alternatives to cancelling your policy.
You may have simply found a new life insurance deal that suits you better and you want to cancel yours in order to enter into a new policy arrangement.
It may be that your circumstances have changed and the reason that you got your policy in the first place no longer applies to you. The main examples of this are where you have taken out a policy to ensure that you can continue with mortgage or other loan repayments should there be any outstanding at the time of your death. If you manage to pay these sooner, for example due to a promotion at work or a big inheritance, it may be that you no longer need your life insurance, or instead want to purchase a different policy.
How to Cancel Your Policy
It’s as simple as getting in touch with your life insurance policy provider and letting them know that you want to cancel. They should have contact details on their website, for example a phone number or email address.
How to cancel can depend on the how much time has passed since you took out your policy. There is often an initial period, typically around 30 days, where you can cancel your policy absolutely free of charge, i.e. without paying the first premium. This varies from provider to provider and as always you should check the terms and conditions. Outside of this period it should be just as easy, but bear in mind that whilst it doesn’t cost anything to cancel, you won’t be repaid any of your premiums. Make sure you also contact your bank to make sure that your direct debit has been cancelled.
A cancelled policy is different to a lapsed policy. Lapsed policies happen when you stop paying your premiums. Your policy still exists but you cannot get a pay-out while it’s in a lapsed state. You can reinstate at any time by starting to pay your premiums again, but if they remain unpaid for too long, it’s likely that your insurance provider will cancel your policy.
Why You Should Think Carefully Before Cancelling
Here are a few reasons why cancelling may not be the best option.
Life insurance is often the first thing to be cut when money gets tight.
Needing to cancel a life insurance policy is actually one of the best arguments for keeping it. There is a huge financial burden placed on your loved ones when you pass away, for example outstanding debts and mortgages, and funeral costs. Keeping your life insurance policy active can help them enormously and relieve the burden. This is especially important if the insured party is the main source of income for the family.
It’s important to remember that life insurance gets more expensive the older you are. If you cancel now with the intention of getting a new policy a few years down the line, it could end up costing more money. You should also bear in mind that if you develop any illnesses or conditions in that period, your life insurance will be considerably more expensive.
Alternatives to Cancelling Your Policy
There are other options to cancelling your current policy:
- Pay less for less: You can speak to your current policy provider about a reduced cover that will cost you less money. Insurance providers will often try to sell you as much as they can, and if your circumstances change, it may be that you are now ‘over-insured’. For example, if you’ve paid off some debts or your children are now independent, you won’t need the same level of cover.
- Improve your health: Losing weight and giving up habits such as smoking will reduce your premiums no matter which provider you choose.
If you want to find a new policy, a good starting point is to use a life insurance comparison
site like ours. It's free and can provide you with an estimate of what you will pay. Or you can speak to an independent life insurance specialist, they can get you a far more detailed idea of the policies that are available and those that are best suited to you. They will give you advice on all your options based on your current circumstances, however, charges can apply for this service.