How To Cancel A Life Insurance Policy?

How to Cancel a Life Insurance Policy?

In certain instances, policyholders may want to cancel their life insurance policy. Sometimes, to cancel the policy, an individual stops paying the premium amount. In other circumstances, they must surrender their life insurance policy or sell it to a third party (brokers or investors). Therefore, a policyholder must consider all available options before canceling their life insurance policy.

Steps to Cancel Your Life Insurance Policy

1. Firstly, you have to contact your insurer. You can contact their customer support using email or a toll-free contact number. Inform them that you want to cancel your policy.
2. The insurer will offer you possible alternatives for canceling the policy.
3. If you still want to cancel your policy, the insurance company will provide you with a surrender form. The policyholder must complete and submit it back to the insurer.
4. The insurer will follow the necessary procedures from their side and cancel your policy. You will get a notification once your policy is canceled.

Different Ways of Canceling a Life Insurance Policy

A policyholder may stop paying the premium, and their policy will automatically lapse and cancel. Other different ways of canceling a life insurance policy are:

• Cancellation During the Free Look Period

  Some insurance companies provide a free look period to policyholders. The free look period is a time duration, usually 15 or 30 days, during which an individual can cancel their policy and get a full refund from the insurance company.

• Cancellation Post Free Look Period for Surrender Payment

  When you cancel your life insurance after the free look period, you are provided with a surrender value. Surrender value is the amount paid by the insurance company to policyholders after deducting certain charges. As per IRDAI guidelines, an insurer cannot impose surrender charges if you surrender your policy after five years.

Why Do People Cancel Their Life Insurance Policy?

Here are the common reasons due to which people cancel their life insurance policy:

• Unaffordable Premiums

  Certain situations may arise due to which policyholders cannot afford their insurance premiums. At that time, policyholders either want to cancel or cash out their life insurance policy.

• Misselling by Insurer

  Policyholders may cancel their life insurance policy if they discover that the insurance company has missold the policy. Generally, misselling occurs when an insurance agent hides or provides misleading information to make a sale.

• Found a Better Option

  When people find a better option from another insurer that best suits their needs and financial requirements, they cancel their insurance policy from an existing insurer and choose another life insurance plan.

• Change in Financial Plans

  If the financial plans of a policyholder change, they may cancel their existing life insurance policy. Let’s understand this via an example: Suppose Mr. Shyam, whose age is 30, has a term insurance policy, but later he discovers that the coverage is insufficient and wants to secure his loved ones with a whole life insurance policy. Mr. Shyam, whose age is 25, is working as a Sales Associate at an MNC. He has a term insurance policy with a policy tenure of 15 years. After five years, he was promoted to Regional Sales Head, and his salary was also increased. He decided to cancel his term insurance policy and opt for a whole life insurance policy, as the term insurance policy seemed insufficient to protect his family financially in his absence.

Alternatives Available to Canceling Your Life Insurance Policy

Canceling a life insurance policy is not the only option available to a policyholder. Here are the alternatives a policyholder can consider:

• Ask Your Insurer for a New Medical Exam

  You may ask your insurer for a new medical exam if there is a change in your lifestyle habits. If you have quit smoking or alcohol intake, you can qualify for lower premiums.

• Decrease Your Coverage Amount

  Some insurance companies allow you to decrease your coverage amount at least once during the policy term. Instead of canceling your life insurance policy, you can ask your insurer if they provide such an option.

• Sell Your Policy

  If you cancel your life insurance policy, the surrender value may involve a lot of charges. To avoid such charges, you can sell your policy to a third party. They can be brokers, investors, or bankers. The amount paid by a third party is generally greater than the surrender value paid by insurance companies.

Conclusion

Certain situations may arise due to which you have to cancel your life insurance policy. However, you have to think twice before arriving at a final decision. To make sure that you arrive at the right decision, it is necessary to evaluate the pros and cons of canceling your policy. You can also opt for alternatives instead of canceling your life insurance policy.