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What to consider when cancelling life insurance

A few quick warnings before you cancel

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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