Reasons to Cancel Your Life Insurance Policy

People buy life insurance for various reasons-such as providing financial security for their loved ones, paying off debts, covering funeral costs or leaving a legacy. However, life insurance is not a one-size-fits-all product and there may be situations where canceling it not only makes sense but is a financially savvy decision. In this article, we’ll explore both when to get life insurance and the reasons to cancel your life insurance. As we dive into these reasons, remember: canceling your life insurance policy is a personal decision that should be based on your needs, goals and budget.

Top 3 reasons people cancel their life insurance policies

Did you know that about 60% of Americans have some form of life insurance? That’s a lot of people who value the peace of mind and protection that life insurance offers. Life insurance is the best way to ensure that your family and your assets are taken care of in case of sudden death, but there are situations where you might be better off without it. Here are the top three reasons to cancel your life insurance policy.

  1. If your mortgage is paid off. Initially a life insurance policy helps guarantee your dependents can pay off your mortgage in case of your untimely death. However, if your mortgage is paid in full, your payments are significantly reduced or your family’s savings and supplemental income is sufficient enough to make payments, you could consider canceling your coverage.
  2. If you have significant savings in your retirement fund to cover future costs and expenses. Do you have enough savings to cover any end-of-life expenses, such as funeral costs, medical bills or taxes? Is there enough financial support for your family after your death, such as pensions, annuities, investments or other income?
  3. If your financial situation has changed and the payments are no longer affordable.

So, should you cancel your life insurance if you meet these criteria? Before you make that decision, think about your future. For instance, will you take on new debt, buy a new house, leave a legacy or establish a trust? These factors are key to making an informed decision about whether you should keep your life insurance policy.

The right move

Wondering when you should buy new life insurance? Or is it possible to have too much life insurance? In the former example you may want to think about getting life insurance. In the latter example, you should consider making modifications to your current policy, especially if there are significant changes in your life, financial situation, health or coverage needs.

However, if you really must cancel your policy, do yourself a favor and look into these options as an alternative;

  • Reducing the Face Value to pay cheaper premiums.
  • A 1035 Exchange into a new policy.
  • Surrendering the policy for the cash value.
  • If you can qualify, a Life Settlement can be a surprisingly beneficial option.

Remember, before you change your policy, consider your current and future goals, needs, and budget. Compare different types of policies and look for the best rates and benefits.

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