How to Cancel a Life Insurance Policy

With some policies, canceling can simply mean writing a cancellation letter to your insurer and ceasing payments. Other policies, like whole life, can involve a more complicated process.

How do I close a life insurance policy?

In many cases, you can contact your insurer and inform them that you wish to cancel a life insurance policy. They may use the word "surrender" instead of cancel, because these terms are interchangeable in life insurance. It's common for notice to be required in written form. Most insurance companies, including Ethos, require written notification for most policy types.

However, it's sometimes possible to cancel a term policy by simply ceasing payments. Contact your insurer and inform them that you'd like to surrender the policy. The agent will tell you if they need the request in writing (many do). After that, it's generally a matter of processing the request and sometimes charging a cancellation fee.

Do you get money back when canceling life insurance?

In general, you won't get premiums back when canceling life insurance. With permanent life policies, you may receive the cash value upon closing the policy after any fees are addressed. Term policies don't have a cash value feature, so there's no money to collect from these policy types when you cancel them. 

In rare cases, it may be possible to get a premium rider on a term life policy. However, these will usually only return premiums if you outlive the policy, not cancel it early. That said, life insurance policies typically have a short free look period wherein you may cancel and receive your payments back. This free look period rarely lasts longer than the first payment or two. 

Understanding how insurance works can help make this process a smoother experience.

What happens if you cancel life insurance early?

Suppose you cancel within the free look period. In that case, you'll receive your paid premium back, and it'll essentially be as if you never bought the policy. The free look period varies between states and insurers. If you cancel after this period, you won't receive your premiums back. Before deciding to cancel, though, it's essential to ask yourself: "Do I need life insurance?". 

If the answer for you is yes, then the next step is to determine how much insurance you need. It may be possible to reduce your coverage and save money on premiums instead of canceling. 

Another effect of canceling early is that the policy payout won't be realized. The investment portion won't grow further (if it's a permanent life insurance policy). In most cases, you won't get your premium payments back. So you may end up partially paying for a product without utilizing it. 

 Can you cancel life insurance at any time?

Yes, life insurance policies can be canceled at any time by the policyholder. However, depending on the insurer and policy type, there may be a process. It's common for insurers to require either verbal or written notification of your desire to surrender or cancel the policy. Beyond this, there may be cancellation fees in some situations. Term life policies are generally the easiest to cancel. 

Depending on circumstances, there may be alternatives to cancellation to save money while preserving the policy. These considerations can be critical as we get older since insurance rates increase with age.

Alternatives to canceling a policy

Knowing how to cancel a life insurance policy is only half the equation. Sometimes canceling a policy is the best way to get what you want, but there may be alternatives. Permanent life insurance policies can often be sold, modified, or borrowed against (utilizing the cash value). Term policies have fewer options, but depending on your insurer, you may be able to negotiate a lower premium in return for a smaller payout. 

If your term policy has a conversion rider built into it, then you can sell the policy on the market. Even if it doesn't have this rider, you may still be able to sell the policy, but for less. 

If you decide to cancel or surrender your policy, consider Ethos' advice on what to know before you cancel.