Thinking of Cancelling Your Life Assurance Policy? Here are Some Options

Simply canceling or surrendering your life assurance policy may not be the best option, if you do decide to cancel the policy for some reason or another.  Some reasons include changes in one’s financial status (the loss of a job), change in one’s mortgage deal (i.e. the mortgage was paid off earlier), the need to convert the policy to ready cash or dissatisfaction with how the investment portion is doing and deciding to move the money to another investment vehicle.

When you surrender a life assurance policy, you notify the insurance company about it. Then you will be paid back the cash values in the policy and the policy is considered as terminated. From the date of termination, life insurance coverage will no longer be available.

Before You Cancel

To put it simply, canceling a policy, especially one that has been recently taken out, is against your best interests.

You will lose your life insurance coverage and you may even not fully recover the premiums already paid, especially if the accumulated cash values are not yet big enough. There may also be penalties for surrendering or canceling the policy early. This is because the cost of acquisition of your policy (agent’s commissions, company costs, etc.) is heavily loaded in the first few years of the policy’s life. The other charges are spread across the entire duration of the policy.

Also, you tend to lose out on potential earnings. Often, if you wait for the life assurance policy to mature, you stand to receive a substantial terminal bonus, which you will have to forego when you cancel the policy.

Other Options Aside From Surrender

  • Hold on to and maintain the policy.

    Generally, matured life assurance policies result in good returns for the policyholder. It also provides life insurance coverage throughout the life of the policy. If there is no dire need for ready cash and you can afford to maintain the premiums, it is best to maintain the policy and wait it out until it matures.

  • Paid up policy.

    You can opt to stop paying for the next premiums due and advise the insurance company to apply any cash values as premium payment for the life insurance cover you have. The premiums will be regularly deducted from the cash values until such time that the cash values are depleted. Once there are no more premium payments, the policy is considered terminated and will no longer provide insurance coverage.

  • Take out a policy loan.

    If you have problems with your cash flow and would want some liquid cash, you can actually take out a loan against your life assurance policy. The amount of the loan will be based on the cash value/earnings accumulation of the policy. You may pay out the loan throughout the life of the policy. Any unpaid amounts will be deducted from the proceeds at the time of maturity or at the time the beneficiaries claim the policy’s death benefit. Take note that your loan will be charged interest.

  • Sell your policy to a third party.

    You can actually sell the policy. This is called a viatical or life settlement. In effect, you are giving up your rights to the policy in exchange for a certain amount, which is usually bigger than what you will receive if you just surrendered the policy. The buyer of the life assurance policy will effectively become the policy owner and the beneficiary. Upon your death, the buyer will receive the proceeds of the life assurance policy.

To protect your loved ones for less, fill the form on the right to get your life insurance quote.