Sometimes you may find that your current term life insurance policy doesn’t meet your evolving needs. You might not even need your insurance. Instead of just canceling your term life policy, it is important to take your time and proceed cautiously so that you don’t potentially leave your coverage or some money behind.
Here are the steps you’ll want to follow if you’re thinking about canceling a current policy.
#1. Don’t cancel the old policy until you get a new policy in place. If you cancel a term life policy, the benefits will immediately cease. There may be a grace period of restricted benefits when you begin a new policy that could leave your beneficiaries under-insured. Try not to cancel an old policy, even if it doesn’t meet your current needs, until you get that new policy fully active.
#2. Some term life policies do collect some cash value over time. If you have a long-term policy that does set aside a portion of your monthly premium to create cash value within it, then canceling it could cause you to forfeit this value. You will need to look at the present value of that policy and consider using it before finalizing your cancellation.
Note: This is not a typical situation. Most term life policies provide a specific benefit for a specific payment. If you stop making the payments, then you lose the benefits.
#3. Renewal rates could be lower than new policy rates. If you are thinking about moving to a new term life provider, you may find that your policy rates could be higher. Ask your current provider about any new provisions or features that your evolving needs may require before going to a new provider. You could find that the renewal rates for an updated policy could still be cheaper than a new policy elsewhere.
#4. Take a close look at your health. A recent diagnosis could classify you in a “substandard” demographic if you cancel your current term life policy. That may increase your monthly payment for a new policy or even make you become uninsurable to a new insurance company. Often a nurse will visit you upon setting up a new Term Life Insurance policy and measure your weight and blood pressure. As you get older, generally your health doesn’t improve with age and insurance rates go up with time.
As people and families grow older, their need for emergency term life insurance can be reduced. As your family grows, you can outgrow this type of insurance as well where it no longer covers and protects your family needs. There are stages in life where it might makes sense to cancel this type of policy if a more suitable solution is found. But before you do, make sure you aren’t making a mistake and leaving anything behind that could be valuable to your family.