If you cancel a life insurance policy, you will have to pay penalties or fees. Additionally, if the policy has an accrued cash value, any outstanding loans against the policy will be deducted before you receive the cash value. If you have paid your premiums in advance, the account will deducted for the amount of time in the billing period that you have not canceled, and the remaining amount will be refunded to you.
Keep in mind, when canceling a life insurance policy with a cash value that you are subject to taxation on the amount you receive when the policy terminates. As long as the policy is in effect, money put into the policy is tax-deferred, but if the policy does not proceed to maturity, that money is considered a taxable income.
Term life insurance policies should be analyzed carefully before you cancel them. If you have already invested 7 of 10 years in a term policy, it makes more economic sense to maintain the policy for a few more years rather than give up the coverage you have already invested so heavily in having. After all, the only money you would get back on a term policy is the pro-rata refund on what you have paid in advance, with the remaining value of your premiums being lost forever.
One final warning about canceling a life insurance policy: Regardless of how long you have owned the policy so far, it will almost definitely cost you more in premiums if you decide to purchase another policy later. Since your premiums are based on your age and health, either of these factors could cause a future policy to be much expensive to obtain, compared to the cost of hanging on to the policy you have now.