3 Most Common Reasons for Canceling a Life Insurance Policy
Just as the name implies, life insurance is usually for life. After all, the policyholder’s family will only receive the death benefits when the policyholder passes away. So why would anyone cancel a life insurance policy prematurely? Individuals usually sign up for life insurance to cover their own end-of-life expenses, to leave something behind for their spouse or their children, or to pay off the family’s mortgage and other burdensome expenses. Even with so much financial security in place, there are a few scenarios in which it might make financial sense to cancel a policy, depending on the policyholder’s current situation.
Loss Of Income
For millions of families across the country, times are tight. An unexpected loss in income will put added pressure on a family’s lifestyle, forcing them to reassess their monthly expenses. As much as someone may want to keep their life insurance policy, strict financial limitations might prevent them from paying their monthly premiums. If this is the case, the individual will save a little bit more every month by not having to pay for life insurance. However, there could be hidden cancellation fees and tax penalties that could dissuade a person from canceling their life insurance policy. A policyholder has other options if they want to lower their monthly expenses. A decrease in coverage or a change in plans can also lower monthly premiums.
Even if canceling a life insurance policy seems like the best way for someone to lower their monthly bills, it can have major repercussions down the line. Without life insurance, a family will have to cover end-of-life expenses out of pocket. An unexpected death in the family could easily cost someone tens of thousands of dollars. When times are tight, it’s best to cut out nonessential items first such as the cable bill, a Netflix account, trips to the hairstylist, or eating at restaurants.
If a loss in income is making you consider cancelling your life insurance policy, speak with your insurance broker about your options. Before you cancel your policy, make sure that you are aware of any additional costs a cancelation might accrue. Cancelling a policy prematurely can also make getting another policy in the future more difficult and more expensive.
Free of Dependents and Other Financial Obligations
If an individual originally signed up for life insurance to protect their children or to pay off their mortgage, they might not have any interest in keeping the policy once their children become independent and their mortgage is paid off. In this case, the individual should make sure that their family is financially prepared to go without coverage before they cancel their policy.
If a lack of dependents and other financial burdens is motivating you to cancel your life insurance policy, sit down with your family and talk about end-of-life expenses, medical bills, the family’s mortgage and other major expenses that will need looking after in the years to come.
Switching Plans
Some individuals might be tempted to cancel a life insurance policy because another insurance company is promising them a lower rate. Switching policies can be a great way to save money or to get more coverage for the same rate. Individuals should take a close look at their current policy and any other policies that they’re considering to make sure that switching is the right decision. Cancellation fees and other hidden expenses might outweigh the financial benefits of switching to a new provider.
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SOURCE: Life Insurance Blog – LifeInsure.com – Read entire story here.
