A lot of Americans purchase life insurance, and they rarely decide to cancel their policies. Termination is possible, although only 4.4% of individual policies were voluntarily cancelled in 2015. While it makes sense to hold onto your policy, there are certain circumstances that warrant cancellation.
Reasons to Cancel Life Insurance Policy
Generally, policies are cancelled because of changes in the owner’s circumstances.
- You have a loss of income. Premiums can strain a budget if you lose your source of income. This could be a job, child support or some other form of income.
- You have less need. You may have purchased life insurance to cover beneficiaries’ expenses, but eventually the need vanishes. Your kids are grown and have graduated college, you’ve paid off your mortgage, or you have plenty of financial protection set aside for your spouse, for example.
- You find a better deal. If you’ve shopped around and found a comparable or better policy than the one you have, you may want to cancel your existing plan in favor of a new one.
Reasons Not to Cancel Life Insurance Policy
Before you cancel your life insurance policy, consider the drawbacks.
- There could be cancellation fees and tax penalties.
- You might need coverage if you have lot of debt.
- If your children are under 18 they might need financial help if you aren’t around.
- Premiums get more expensive as you get older, so if you plan to cancel a policy and replace it down the road you’ll have to pay more.
- Cancelling a term life insurance policy won’t get back the money you’ve already put into it.
If you feel you need to cancel your life insurance policy because of financial hardship such as a loss of a job, there are alternatives to consider. You could reduce the face value of the policy and pay smaller premiums. Also, instead of cancelling your policy, tighten your belt a little and cut nonessential expenses for awhile. These might include those trips to Starbucks, a premium cable package, dining out or unnecessary shopping.
Einsurance is a great resource for shopping insurance policies. Find out how other life insurance policies compare to yours, or find a new policy here.
According to the American Council of Life Insurers, the average face amount of individual life insurance policies in 2015 was $160,000.