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What if I apply for life insurance coverage but then decide I don't want coverage?

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Occasionally, someone will apply for a life insurance policy only to decide that the policy was unnecessary, perhaps because they have another policy covering the same needs. The good news is that whether you have paid any premiums in advance or not, you can cancel the policy without a great deal of trouble.

Contact your agent or the customer service department of the insurance company as soon as you know that you want to cancel the policy. If you have not paid any money for the plan yet, the process is much simpler. You can still terminate the policy, even if you have paid the full premiums up front, but the time you wait will count against you.

The money you receive back from the insurance is a prorated amount of what you have paid in. There will be certain administrative costs if the policy has progressed to the underwriting stage, and if the policy has already gone into effect your refund will be prorated to match the time elapsed. A newly applied-for life insurance policy will not have accrued any additional cash value in the first month or two of having a policy, so terminating a permanent life insurance policy and a term life policy is the same process.

Before you cancel a life insurance policy, make sure that you do not need it anymore. Even if the life event you had based the policy no longer exists, consider whether the policy can be used to provide protection for other events in your life, such as putting aside money for your children's college tuition. Life insurance policies are based in part on your age and health, and you will probably never be able to match today's rates a few years down the road. If you are considering a policy with a cash value, you need to determine whether the slow accumulation of a tax-deferred savings should be abandoned rather than allowed to grow, because such savings can be a tremendous financial tool in later years.

answered Mar 26, 2014 by anonymous
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