Almost half of whole life insurance policies are canceled within the first decade. If you're thinking about canceling whole life insurance, learning how and when to do so can help you protect your investment and make the best decision for your situation.
How Do You Cancel Your Whole Life Insurance Policy?
There are three main ways to cancel your whole life policy. The simplest one is to simply cash out. This means your coverage ends completely and no benefit is paid if you die. You can generally only do this after the surrender period. Check with your agent to find out what that period is on your policy.
Another option is to not cash out but choose to keep coverage for a certain period. With this method, you stop paying premiums. The amount of cash value in your policy is used to cover the premiums, which means you have coverage until that cash value runs out.
The last option is essentially the opposite of the previous one; you keep the whole life coverage but with a reduced death benefit. You still stop paying a premium. The death benefit is then calculated using the amount of money you paid in via premiums up to that point.
Do You Get Money Back if You Cancel Whole Life Insurance?
The return when canceling whole life insurance typically depends on how long you’ve owned the policy. This is to ensure the provider doesn’t lose money if you cancel.
Generally, if you cancel early — during what's called the surrender period — you won’t get much of a return if at all and may have to pay fees. Typically, the surrender period is 2-3 years after the policy starts. After that, the policy can usually be surrendered with progressively lower fees and higher payouts.
It's important to note that the specifics depends on your policy. Always check your policy documents or talk to your agent if you are considering a change to your coverage.
Selling a Life Insurance Policy
If you’re considering canceling your life insurance policy, you might also be looking into selling it. You’ll lose any death benefits if you sell a policy, but this might be a way to get some fast spending money.
The pay out when you sell a life insurance policy is generally less than the death benefit. And you will generally only be able to sell a policy if you are older than 65 and the face value of the policy is over $100,000. Selling your policy is only the best option in really specific scenarios, so it’s important to look into alternatives and talk to your financial advisors or agents to choose the best option for your situation.