Life Insurance is the roof that provides shelter to each family of the policyholder who signs up for their security. Even after the death of the policyholder, Life Insurance continues to shield the family in order to render them a safe life ahead. However, there are a few cases in which people choose to terminate their life insurance policies. There could be a lot of reasons that urge them to do this.
What Are The Consequences of Terminating a Life Insurance Policy?
Typically, there are several ways to terminate the Life Insurance Policy. But before you move on to terminate the policy, it is important to analyse the consequences that will follow. This is not only vital to ensure convenience ahead but also to decide whether you’re making the right choice. Given below is a brief of the same:
1. No Privilege of Premium Payments
In most cases, for those who terminate their life insurance policy, do not receive any refunds and cashbacks. They also fail to enjoy the premium payments that could have been used to enormous advantages. However, in whole life insurance policies, this situation might differ as a few insurers do offer cashback even after the termination of the policy.
2. Loss of Numerous Benefits
The safest roof to take shelter in has always been a life insurance policy. Especially, during the time of urgency, this comes in very handy. But with the policy terminated, one can no longer enjoy these benefits and death covers that are guaranteed here.
3. Starting All Over Again
If you cancel your life insurance policy and later plan on reapplying, the whole process of undergoing the medical exam, providing payment and other formalities will all have to be repeated. This could be a major hassle for you. More so, this time the rates could even be higher, so you might want to reconsider terminating the policy.
Ways To Terminate a Life Insurance Policy?
Since the policy could differ in individuals, there is a different termination process for each of them. Let’s discuss them in detail:
1. Terminating a Whole Life Insurance Policy
This is a little more complicated than the term life insurance policy since each policy contains different forfeited rules. However, these are some of the most common methods that you can opt for and be successful without a problem.
- Stop Making Payments
As easy as it sounds, in most cases, if you stop making the policy payment, the insurers withdraw your whole life insurance policy. However, if it doesn’t work, you can try the other options mentioned below in the article.
- Cash-out Your Policy
The most obvious way to deal with this problem is to directly cash out your policy. Although in the first few years of signing the policy if you try to do this, you might be charged a certain amount of fees (penalty) or no deeming of cash value. This effectively gets you out of your hassle. In case, you are a policyholder who plans to cash out with a period of 10 to 20 years, you might have to pay lump sum fees. But since it differs from one insurer to the other, you might not have to face this issue of penalty payment at all.
2. Terminating a Term Life Insurance Policy
- Write a Letter
A letter always works in giving vivid details for anything. Similarly, when you want to terminate your life insurance policy, writing a letter can do the job. Here’s the format that you can use for the letter you want to provide to the insurer for the same reason:
Dear Insurer (NAME),
I am writing this letter to terminate my term life insurance policy (DATE)
My policy number is XXXXXXXX
Kindly return the unused premiums at (ADDRESS)
- Avoid The Premium Payments
Another method that you can use to get your policy terminated without much hassle is to stop paying the premiums that are required within every specific time period. When the insurer notices this, they will automatically terminate the policy.
3. Terminating a Group Insurance Policy
Terminating a group life insurance policy is very simple and convenient. In many cases, the retirement or farewell of an employee from the team can lead to the termination of their group life insurance policy as they convert it into their personal policy.
What Are The Substitutes For Terminating a Life Insurance Policy?
Demand a New Medical Exam
Since the premiums are higher in case of a habit that could lead to an uncovered death (via smoking/drinking), if you make a shift from any of these changes, you can opt for lower premiums. So, if you ask for a new medical exam, it will automatically ask for a new policy, which will immediately help you to terminate your existing policy. This way you can both terminate your existing policy and seek lower premiums without facing any added inconvenience.
Decreasing The Coverage Amount
In many cases, there are insurers who allow a decrease in their coverage amount at least once during their policy term. If you still haven’t received the chance, try and talk to your insurer about it to see if they permit it.
Arrange For The Cash Value of The Policy
In case the policyholder contains the whole life policy with a certain cash value, they may surely succeed in receiving cash value premiums. If you are not sure about the details regarding the same, it is recommended for you to speak to your insurer about this properly.
The Bottom Line
There could be a host of reasons as to why you might be in need of terminating your life insurance policy. However, do explore each factor vividly before you take the step. It is always best to measure both the pros and cons of terminating your life insurance policy before you head for it.