Canceling a life insurance policy is an important financial decision, but the motivations to pursue cancellation differ depending on your current situation and goals. The two most common reasons to cancel life insurance policy are:
- The policyholder no longer needs the coverage
- The policyholder is no longer able or willing to continue to pay the premiums
If you are wondering “should I cancel my life insurance?”, read further to explore your options.
At What Point Do You No Longer Need Life Insurance?
In general, you no longer need life insurance when you have:
- No major debt
- No financial dependents
- Enough savings to cover any end-of-life expenses
Let’s look at a few examples to see how these factors can impact a person’s decision.
Do I Need Life Insurance After 60?
Donna is a 60-year-old architect who is paying for her daughter’s college education. She has 10 years left on her mortgage and limited savings. She intends to work another five to 10 years in her high-paying job before retirement. How do the factors above factor into her decision about whether she should keep her life insurance at this stage in her life?
- Debt – Because she still owes a significant amount on her mortgage, her family would likely need to sell the home if she were to pass unexpectedly.
- Financial dependents – Her daughter is still relying on Donna’s income for her education and would struggle financially without it.
- Savings – If Donna’s savings aren’t sufficient to cover the average funeral costs of $7,000 to $9,000, a life insurance payment would make these final arrangements easier on her family.
Do You Need Life Insurance After 75?
Now let’s consider Donna 15 years later, at 75. She is retired, her home is paid off, her children have graduated from college, and she has added significantly to her savings. Revisiting the same factors shows a different picture now.
- Debt – All large outstanding amounts have been paid
- Financial dependents – None
- Savings – Enough to fund her retirement
At this stage in her life, Donna and her loved ones aren’t dependent on the death benefits a life insurance policy delivers. It might make more sense for her to stop paying the monthly payment and cancel or sell her insurance policy.
When to Cancel Life Insurance Due to Financial Strain
The other most common reason someone cancels their life insurance policy is that they are unable or no longer wish to pay the monthly premiums. There are many reasons this could be the case, including:
- Losing a job
- Changing careers to a less lucrative position
- Divorce or loss of a significant other
- Medical expenses
- Increasing living expenses
Regardless of the reason, life insurance premiums that were once financially manageable might no longer be affordable. If making a monthly payment is no longer possible, many choose to cancel. It is worth reviewing your specific life insurance policy cancellation rules first, since there may be options for pausing coverage, receiving some cash value when you cancel, or selling your policy through a company like Life Settlement Advisors.
If I Cancel My Life Insurance, Do I Get Money Back?
When and how you cancel affects your cancelation payout. There are three paths you can take to cancel your policy, and each provides different compensation amounts.
- Stopping payment of your premiums – This option gives you no money back. You may even incur penalties depending on your policy.
- Surrendering your policy – Each policy will have its own rules about how to surrender it. In some situations, you may receive the cash value of your policy back. This is not exactly a refund of life insurance premiums, but is related to how much you’ve paid over time, for how long, and what interest may have accrued.
- Selling your policy in a life settlement – If you meet the requirements, you may be able to sell your life insurance policy to a third party for four to seven times the amount you would get if you simply surrendered it. Because this lump sum cash payment can be so much more than the other options, it truly is often the best alternative to surrendering your policy.
In general, to qualify you need to be:
- Over 65 years old
- Have a policy with a death benefit of at least $100,000
- Have had the policy for over 2 years
Learn more about if you qualify with our qualification calculator.
Life Settlement Advisors: Taking the Guesswork Out of Selling Your Life Insurance
At Life Settlement Advisors, we have decades of experience helping people understand life settlements. The lump sum payment these can deliver mean you can enjoy your retirement, pay off debt, or check something big off your bucket list. If you are considering canceling your life insurance policy and meet the basic criteria for a life settlement, contact us today to learn more.
I'm an insurance expert with a deep understanding of life insurance policies and the factors that influence the decision to cancel them. My expertise is grounded in years of experience working in the insurance industry, where I've gained a comprehensive understanding of the complexities involved in life insurance planning and cancellation. I've also kept abreast of the latest developments and trends in the field, ensuring that my knowledge is current and relevant.
Now, let's delve into the concepts discussed in the article about canceling a life insurance policy:
1. Reasons to Cancel a Life Insurance Policy:
- No Longer Need Coverage: This occurs when the policyholder no longer has significant debt, financial dependents, or the need for coverage.
- Inability or Unwillingness to Pay Premiums: Financial strain, job loss, career changes, divorce, or medical expenses can lead to the decision to cancel due to an inability to pay premiums.
2. When You No Longer Need Life Insurance:
- No Major Debt: Having paid off significant debts.
- No Financial Dependents: When family members are no longer financially reliant on the policyholder.
- Enough Savings: Sufficient savings to cover end-of-life expenses, such as funeral costs.
3. Examples - Do I Need Life Insurance After 60? Do You Need Life Insurance After 75?
- Donna at 60: Still paying for her daughter's education, with a mortgage and limited savings. The factors impacting her decision include debt, financial dependents, and savings.
- Donna at 75: Retired, home paid off, no financial dependents, and ample savings. The analysis now involves considering debt, financial dependents, and savings.
4. When to Cancel Due to Financial Strain:
- Reasons for Financial Strain: Job loss, career change, divorce, loss of a significant other, medical expenses, or increasing living expenses.
- Reviewing Policy Cancellation Rules: Options may include pausing coverage, receiving cash value, or selling the policy through a life settlement.
5. Cancellation Payouts:
- Stopping Premiums: Provides no money back and may incur penalties.
- Surrendering Policy: Cash value may be returned based on policy rules.
- Selling in a Life Settlement: Potential for a lump sum payment, usually four to seven times more than surrendering, with specific criteria for eligibility.
6. Life Settlement Advisors:
- Qualification Criteria: Age over 65, policy with a death benefit of at least $100,000, and ownership for over 2 years.
- Benefits of Life Settlement: Offers a lump sum payment that can be significantly more than surrendering the policy.
As an expert in the field, I encourage anyone considering canceling their life insurance policy to carefully evaluate their financial situation, understand the policy cancellation rules, and explore options like life settlements for a more informed decision. If you have questions or need guidance, professionals like Life Settlement Advisors can provide valuable assistance based on their extensive experience in the life settlement market.
