If you’ve made the decision to invest in a term insurance policy, you’re likely aware of its benefits already. A term insurance plan will pay a death benefit to the nominee of the policyholder, equal to the sum assured, if they pass away during the term of the policy, making sure the future of the family is financially secure. However, there may be instances where you feel that your term insurance plan is no longer in your best interest, and you may want to cancel the policy you’ve opted for. Here’s a guide on how to cancel term life insurance, and what the implications of cancellation might be.
What are your reasons for cancelling your term policy?
Before you decide to cancel your term plan, it is recommended that you carefully analyse the reasons that have prompted you to consider cancellation. One common reason for cancellation is that you feel the policy doesn’t suit your specific needs, or you’re unhappy with the features of the policy or the quality of service by your provider. Another reason could be that you have found a policy from another provider that offers you better benefits with lower premiums. There may also be circumstances where you can’t afford the premiums anymore, or need to channel that money into a more pressing requirement. Whatever your reason may be, do weigh the pros and cons of cancellation and make an informed decision.
How can you cancel term life insurance?
The method you employ to cancel your term insurance policy will depend on whether or not you’re still in the free-look period of the policy. Term policies offer a 15-day cooling period (30 days in case of an online sale) from the date of receipt of the policy, during which the policyholder can analyse the features and benefits of the policy to determine whether it’s a good fit for them. During this free-look period, if you’re convinced that the policy you have purchased is not a match for your needs, doesn’t meet your expectations, or if you find a better offer, you can generally cancel the policy without incurring any penalties. Here is the process for cancellation during this period:
- As soon as you decide that your chosen policy isn’t right for you, you should immediately request a cancellation with your insurance provider in writing. Many providers will also have a standard cancellation form for the cooling period. You must provide details such as the date of receipt of policy and reasons for cancellation in the form, amongst other things.
- Once your provider receives your cancellation request, they will contact you to further understand your reasons for cancellation. They will most likely offer alternate choices or solutions based on your reasons.
- If you still wish to cancel, you can communicate that to your provider, who will then set the process in motion. Once your request is approved, your insurance provider will refund any premium payments you have paid towards the policy. It is important to note that this refund is calculated after deducting the pro-rated risk premium for the coverage period, stamp duty charges, and any expenditure the insurance provider may have incurred on medical examinations of the policyholder.
But what if you want to cancel your policy after the cooling period has expired? You have the option to do so, but do remember that you will not be eligible for a refund and you will have to forfeit any premiums you have paid so far towards the policy. You can cancel your policy in one of two ways:
- You can stop paying your premiums. When you miss a premium payment, the insurance provider generally gives a grace period of 30 days to make the payment. After this grace period, your policy will lapse. Though you will incur no extra cost, the premiums you have paid will not be refunded to you.
- You can write to your insurance provider informing them that you wish to withdraw from the policy. If you pay via direct debit, do call your bank and ask them to discontinue the debit from your account towards the insurance policy.
Another point to remember is that if you do cancel your term plan after the free-look period, reinstating the same policy later or buying a fresh one will both cost you more money in the form of higher premiums.
Other things to keep in mind Once you decide to terminate your term plan, do analyse if there’s an alternate solution. For instance, if you’re simply unhappy with the policy or provider, you may cancel immediately to seek a better offer. However, if you feel that the policy is becoming unaffordable for you, do consider talking to your provider and reducing your sum assured amount. By doing this, you can lower your premiums and pay an amount that is affordable for you. You should also evaluate the financial cost of cancelling a policy after the free-look period. If you want to withdraw from the policy because you feel that the premiums can be invested in a more lucrative opportunity, make sure that the returns you make on those investments are higher and can help you recover the cost of the premiums you have already paid before cancellation.