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In most cases, cancelling your life insurance policy is easy – you only need to stop paying your premiums, which will lapse your policy. However, other options, like selling your policy or surrendering life insurance, are also worth considering.
Life insurance is bought to secure your family’s financial future. However, there are some instances where you may feel your policy no longer fulfils your primary needs. In these cases, cancelling or surrendering your policy may be the best option.
Read on to find out how to cancel your life insurance policy or even opt for other alternatives!
Steps to Cancel/Surrender Your Life Insurance Policy With Tata AIA
- To cancel/surrender your life insurance policy using any of the stated methods, you must contact us via phone or email.
- You can download your Surrender Request Form from our website under the ‘Policy Servicing Forms’ drop-down.
- If you are switching to another insurer or to another life policy, only cancel your policy when the other plan has been agreed upon to ensure continued coverage.
Ways To Cancel Your Life Insurance
Cancel Within the Free Look Period
If you have any immediate regrets or buyer’s remorse, you can always cancel your life insurance policy within the free-look period and get a full refund. It is typically 15 - 30 days with Tata AIA.
Surrendering a Life Insurance Policy
If you are well past the free-look period and want to cash out your policy, then surrendering your life insurance may be your next best option in case of a permanent or a whole life policy.
As you pay your premiums, your life insurance plan will accumulate a cash value that can be borrowed, withdrawn or even used to pay your premiums. The surrender value is the cash amount paid to you if you cancel your life policy before it matures.
Generally, insurers only pay out the surrender value if you have held your policy for a certain number of years – typically 3 - 5 years. According to the IRDAI, life insurance companies can not charge surrender fees if you surrender your policy after five years.
[Also Read: Want to Surrender Your Term Insurance Plan? Here’s How You Can Do It]
Life Settlement: Selling Your Life Insurance Policy
Life Settlement: Selling Your Life Insurance Policymplicated as you will need to find reputable brokers/investors, and they may expect commissions for selling your life policy. This process is also called a life settlement.
The cash payment received for selling a policy is usually more than the surrender value but significantly less than the death benefit. Most often, investors like banks or other financial institutions take ownership of the policy and become the beneficiaries.
This means they can sell the policy to another person without telling you, retain ownership, and keep paying premiums until the policy matures. If you pass away, they will get the death benefit payout.
This can be a viable option if you are older, do not have any life-threatening illnesses and need a cash payout in case you have not been able to save enough for retirement.
[Also Read: How to Sell a Term Life Insurance Policy In India?]
Cancelling a Term Life Insurance Policy – Let Your Policy Lapse
Cancelling term life insurance policies is fairly easy – Stop paying your premiums and let them lapse. When this happens, most insurers will automatically terminate your policy. There are usually no fees or penalties for cancelling a term insurance policy.
Any premiums paid will also be refunded if you cancel during the free look period of 15 - 30 days.
If you change your mind, you can always revive your policy within the revival period – 2 years from the last premium payment, or you can even buy a new Tata AIA term insurance policy that better suits your needs.
Alternatives to Cancelling Life Insurance
In most cases, people cancel life insurance policies when they can no longer afford them. Here are some ways to retain coverage and ownership of your policy rather than cancelling your term life insurance policy:
- Choose a Reduced Paid-Up Option: This feature is primarily available in Term Return of Premium (TROP) and whole-life plans. It allows you to retain insurance coverage while paying lower or no premiums using your accumulated cash value in exchange for a lower death benefit.
This feature is only applicable if your policy has acquired a surrender value. You must inform your insurer if you want to activate this feature. If you stop making payments without prior agreement, your policy could lapse. - Use Your Policy’s Cash Value Pay Premiums: If you have a whole life or permanent policy, you can use its accumulated cash value to pay your premiums until you can afford to pay them yourself. This will keep your death benefit intact and still offer life insurance coverage.
- Lower Your Coverage Amount: Most life insurers will allow you to lower your sum assured amount at least once during the policy’s term. We advise contacting your insurer to know if this is possible before you cancel your life insurance.
- Ask for a New Medical Exam: You could qualify for lower premiums if you have quit smoking, drinking, lost weight or have made other lifestyle changes to improve your health.
The terms and conditions associated with these suggestions can vary across insurers. We advise that you ask them about these alternatives before a policy purchase to ensure you can still retain life insurance coverage if you ever hit a financial slump.
When Should You Cancel Your Life Insurance Policy?
- You Found a Better Deal: In cases where you have found another policy that better suits your financial goals and coverage needs, it may be best to cancel your current policy and opt for another life insurance plan.
- You Have Paid Off Your Debts/Loans Early: If you bought a term plan to cover the period of your loan payments and paid off your loans sooner than expected and no longer need the coverage, cancelling your term life insurance policy to save on premium payments may be a viable option.
- You Cannot Afford the Premiums: If this is the case, using any of the methods stated in the previous section can help lower your premiums. However, in more extreme cases, you may just have to cash out or cancel your life insurance policy.
- Your Financial Goals Have Changed: Your goals may have changed with a new life event or milestone, and you may find that other insurance products do a better job of fulfilling your needs.
For example, if you have a term insurance policy, cancelling or exchanging it with a whole life policy can be a better solution to secure your family.
Conclusion
Life can be unpredictable, and you may need to fall back onto spending on only the essentials during certain life stages. When this happens, cancelling your life insurance policy or cashing out to get immediate funds may be your best option.
To ensure you are making the best choice, take the time to evaluate your options and discuss any alternative strategies with your insurer if you still want to retain your life insurance coverage but cannot afford the premiums.
