Cancelling Your Life Insurance Policy In 2022

If you have no financial dependents, outstanding debts or a mortgage and you’re experiencing financial strain; you might be wondering whether you should cancel your life insurance policy. Before you cancel your life insurance policy, it may be a good idea to check with your insurer to see whether you’re liable for any penalties.

Published March 17, 2022

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Once your life insurance policy is terminated, either by cancelling or due to non-payment, you’ll no longer receive financial protection against the risk of an unexpected death, injury or sickness, depending on the policy you have. You generally won’t receive a premium refund, unless you paid in advance or have an old endowment or whole life policy which could have residual value.

Reasons for cancelling

Usually, people cancel their life insurance because they feel they can’t afford the premiums any longer or their requirements have changed, for example, they’ve gotten married and started a family and feel their current policy is no longer appropriate.

On the other hand, if you’re approaching 65 and your home is paid, your children are financially independent, you have savings in the bank, a funeral policy in place and your retirement is on track, cancelling your life cover might make sense.

However, if you still need continued financial protection (i.e. loans to repay, mortgages, debt or loved ones to support) some coverage is better than none. There are generally several options available to you to help you keep your life insurance premiums as affordable as possible.

Do you get a refund if you cancel your life insurance?

No, usually you won’t get any money back when you cancel your policy because term life insurance has no cash component and thus no surrender value. However, if you paid your premiums annually in advance, and decide to cancel your policy, you might receive a pro-rata reimbursement of the unexpired portion of the premiums, less any cancellation fees or charges.
However, it’s best to check with your insurer before cancelling.

How to cancel your life insurance

While you should take time to consider terminating your cover, the actual cancelling of a life insurance policy is relatively straightforward, and you generally won’t be charged any fees for ending your policy before its term has ended. The 3 steps to cancelling your life insurance include:

Step 1.

The policy owner must contact the life insurance provider informing them of their intention to cancel.

Step 2.

Cancellation requests must be in writing. Inquire whether your insurer has a specific cancellation form that needs to be completed or whether you’ll need to write your own cancellation letter.

Step 3.

Complete your cancellation letter, sign it and submit it to your insurance company. All the policy owners should sign the completed cancellation form or letter.

How to write a life insurance cancellation letter

A cancellation letter is a legal requirement of all insurance companies and should include the policy owner’s name and signature, the insurance company’s name, your policy number and intention to cancel. Remember to date your cancellation letter before sending it to your life insurance provider via email, fax or post.

Be sure to ask that they acknowledge receipt of your letter. After a day or two, you might want to give the company a call to make sure the cancellation has been actioned.

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Consequences of cancelling your cover

If you’ve only recently taken out your policy and are having second thoughts, you’ll generally have a 14 to a 30-day cooling off period, depending on the insurer, wherein you can cancel your policy without consequence. However, be sure to review your product disclosure statement (PDS) and the terms and conditions of your policy.

Even though there are some legitimate reasons why you might want to cancel your policy, it still requires serious considerations regarding the possible implications, such as:

Alternatives to cancelling

Before you end your policy, you might want to:

Frequently asked questions and answers

  • Can a life insurance company cancel my policy?

    There are only a few reasons that a life insurance company might cancel your policy. Due to non-disclosure, i.e. providing misleading or false information at application time, submitting a fraudulent claim, none payment of premiums or when you’ve reached the policy’s termination event, for example, full benefits have been paid.
  • What happens if you stop paying your life insurance policy?

    Generally, if you’ve stopped paying your premiums and have not paid the overdue amount in full within a certain amount of time (usually 60 days depending on the insurer), your policy will cancel – lapse, and you will no longer receive financial protection.
  • Can I reinstate my lapsed policy?

    The policy owner can generally apply for a policy to start again after it has lapsed. However, reinstatement might depend on the amount of time that passed after the policy expired and the insurer might require evidence that the insured person is in the same state of good health before reinstatement will be granted. In most cases, you will need to make good on any outstanding premiums.
  • What is the life insurance cancellation period?

    A cooling-off period, also sometimes referred to as a cancellation or grace period, is the time just after your policy commences, usually 14 to 30 days depending on the insurer, where you can review your policy, and if you decide to cancel it, you’ll receive the full refund of any premiums paid.
  • At what age does my term life insurance cancel?

    A term life insurance policy’s expiration date varies depending on your insurer, and could be anything from age 60 to 100, depending on the insurer you’ve chosen and whether you’re paying stepped or level premiums, and whether your policy is held inside or outside superannuation.

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