So
you are considering cancelling your life
insurance policy. There's a whole
range of reasons that policy owners have
when making this decision but it's
important to understand the
ramifications of cancelling such a plan.
We'll look a little closer at the more
common situations when cancellation
usually comes up as well as the pitfalls
for such a move.
First, we really feel it's important to
touch base with a professional
life
insurance broker before cancelling your
policy. Even if you plan on doing
it no matter what, it's always good to
just touch base with someone who
understands the in's and out's of life
insurance. That being said, what
are some common reasons for people
wanting to cancel their life insurance?
The biggest one we see is cost.
People either hit a financial road bump
(which is very common these days unfortunately)
or simply decide that they do want to
pay that life insurance premium any
more. Usually, this situation is
the result of
paying too much for life
insurance up front. If a person is
paying 10 times the amount for whole
life insurance than they would pay for
term life, they are more likely to
cancel their policy in the future.
This is especially true if they run
their online quote and find out how much
cheaper term life is in comparison.
They may have just purchased
badly...even with term life insurance.
This could be the result of not seeing
all the options (a captive agent) or
making a rush decision (maybe even
a "sold" decision). There's also
that ever-present American value of
spend now and worry about the future
later. This is just a temporary
amnesia of the entire need for life
insurance to begin with. So they
cancel it.
There are situations where a person's
needs for life insurance genuinely
change. This could result from a
range of changes such inheritance,
changes in dependent status (say
resulting from a divorce), or income
changes. There's a myriad of
financial situations out there to match
each and every person so life insurance
needs may prompt a person to cancel
their life policy. This is
especially true if there are multiple
policies.
A
life insurance policy may also be a
carry over from group life insurance
originally offered by a company during
employment. Now that the employee
is paying the premium instead of being
offered it as a benefit of employment,
it might not pencil out as well.
What are the downsides to cancelling life
insurance. First is the fact that
you are now immediately at risk from the
financially catastrophic situation that
the life insurance was originally
purchased to protect you from. You
have no life insurance (or less of).
Life insurance
rates is based on age and more
importantly, it is bought with health. WIth each passing year, you will pay
more for a given life insurance benefit
and it's safe to say that your cancelled
life insurance policy was bought at an
earlier age. Health is even more
critical. If health has changed or
does change in the future, it can be
difficult if not impossible to qualify
for either life insurance or the best
possible rate.
There are genuinely situations where
cancelling life insurance makes sense
but it's usually after a better priced
option has been purchased and is in
effect. If you're
price-shopping
life insurance, make sure not to cancel
your existing life policy until you have
received written confirmation of your
approval and the policy from the life carrier at the
rate you want to pay. Never assume
you will get the coverage until it
actually comes through. This
in-between time is a
dangerous time to cancel your policy.
As always, we are happy to walk through
your situation to help analyze your
options.
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