How to Cancel a Life Insurance Policy
Life insurance is a valuable item for financial planning in the event of your death, and ensuring family is taken care of after you're gone. However, there are times when canceling a policy is necessary. Follow the steps below to make sure it is done properly.
How to cancel your life insurance policy:
- Examine the tax liabilities and consequences of canceling the insurance policy. If it is a whole life policy, the cash received upon cancellation over and above the premium is considered income by the IRS and subject to taxation. It is also a good idea to discuss any potential tax penalties with an accountant.
- Stop making payments on the premiums of the insurance policy. The cessation of premium payments will create a lapse in the insurance coverage.
- Contact the insurance agent, or the insurance company that wrote the policy. Let them know that you are canceling the policy. Ask the agent for an address to send a cancellation letter. It is important to put such important matters in writing to create a paper trail. In the content of the letter, make sure to make it clear about intention of canceling the policy, and the date to terminate. In the letter, request a confirmation letter from the insurance company.
- Mail the letter through certified mail, return receipt requested. This will provide documentation that the company received the letter.
- If the insurance company requests any signed documentation, read and sign it. It is standard industry practice to sign documents indicating that the surrendering of the life insurance policy.
- Make sure cash value is received upon cancellation of the policy. If it is a term policy, there will not be cash back.