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Cancelling your life insurance policy in 2021
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NEOSThere are several reasons why you may wish to cancel your life insurance policy. You might be coming out of a long-term relationship, or you could be looking for a more affordable option.
Take the time to look at the alternatives and compare your options before deciding to proceed with the cancellation process.
Key Facts
- Generally, you won’t receive any refunds if you cancel your cover, unless you do so during the mandatory cooling-off period or you’ve paid any premiums in advance.
- Instead of ending your cover, you could switch to a different provider who meets your requirements.
- If you cancel your cover, any policies you apply for in the future may be more expensive.
- By maintaining your policy, you ensure your family is taken care of when you’re no longer around.
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When you cancel your policy, do you get a refund?
No, generally you won’t receive a refund unless you’ve terminated your cover during the mandatory cooling-off period or you’ve paid your premiums in advance. During the cooling-off period, typically between 14 and 30 days, your insurer may return any premiums you’ve already paid. However, this is only applicable if you haven’t made any claims.
Premiums for life cover won’t be refunded if you terminate after this period unless you pay your yearly premium in advance. In the case of advanced payment, you’ll typically receive a pro-rata refund on your insurance.
Alternatives to cancelling
Generally, it’s a good idea to explore your alternatives before stopping your life cover. You could look at switching to a different service provider or policy. Alternatively, you have the option to reduce the amount of cover you receive.
You could even ask your insurer about a price freeze or removing CPI increases from your premium. Otherwise, you could suspend your cover till you’re back on your feet.
How to cancel your policy
- Step 1: Ensure you’re 100% certain you want to stop your policy by assessing your needs. Review your current financial responsibilities and ensure that you have enough money cover set aside to provide for your dependents. Your insurance should typically be enough to pay your outstanding liabilities and provide financial support for your loved ones.
- Step 2: Contact your insurer. You generally can’t terminate over the phone. However, you should call them to confirm you have the correct policy information and that you intend to end your policy.
- Step 3: Confirm your intention to terminate your cover in an official letter. You will generally be sent a confirmation letter once this has been actioned by the insurer, if you haven’t received this important to follow this up to ensure your request is actioned.
While it’s important to take your time to think about terminating your cover, the actual process is relatively simple. Generally, you won’t be charged any fees for ending your policy before the term has ended.
Writing a cancellation letter
Typically, you’ll need to include the following information in your letter:
- Your insurer’s name and the specific policy to be terminated
- The policy number
- The preferred end date for your coverage
- Policy owner (s) name
- Policy owner (s) signatures
- End with your contact details and your desire for a follow-up confirmation
Once your insurer has received your letter, they’ll generally keep you updated on the status of your policy.
Possible reasons for cancelling life insurance
There are several reasons why you might wish to cancel your life insurance. For instance, you may be getting married or divorced, or there’s been a change in your circumstances that require you to care for more dependents.
Alternatively, you may be immigrating or retiring, and you aren’t able to maintain your policy. Wanting to change policy or service provider or buyer’s remorse are also valid reasons to cancel.
When changing your policy or insurer, coordinate the end of your policy with the start of your new option to ensure continuous cover.
Pros and Cons of Life insurance
| The advantages of life insurance | Possible disadvantages of life insurance |
|---|---|
| Financial support: Helps your family cope with the economic impact of your death. | The monthly expense: Life insurance premiums are another monthly expense for households. |
| Tax-free benefits: Life insurance pay outs from personally held policies are usually tax-free when paid to your nominated beneficiaries. | The policy is only paid out after your death: You won’t necessarily be able to enjoy the benefits of the cover during your lifetime. |
| Change is easy: You can make reductions and certain increases to your policy based on your needs over time. | Your health affects your premiums: Premiums are generally based on the results of several factors like your age, the sum insured, and your medical history at the time you took out the policy. |
What happens when you cancel a life insurance policy?
There are several consequences that you need to consider before you terminate your life cover. These include:
- Losing your premiums: The premiums you’ve paid will be lost
unless you’ve cancelled during the cooling-off period or paid annual fees in advance in which case you’ll typically receive a pro-rata refund. - Financial vulnerability: Should you pass away, your family will be left with no cover to help with things like funeral costs, outstanding bills, mortgage payments, and their living expenses.
- New cover might be more expensive: If you decide to take out cover again in future, your premiums might be higher because you’ve gotten older and or your medical history may have changed.
- Replacing your policy: When applying for a new policy, you may be declined, or you might be subject to specific exclusions if your health has declined. Therefore, you shouldn’t stop any existing policies until you have a new policy enforced.
Frequently asked questions
What is the life insurance cooling-off period?
As a new policyholder, you’ll have 14 to 30 days to change your mind about your policy. This timeframe, known as the cooling-off period, varies with different insurers. Terminating cover during this period allows you to claim a refund of your premiums if you’ve not lodged a claim.Are there penalties when stopping your life insurance?
Typically, there are no penalties incurred when stopping your term life insurance policy. Your premiums will, however, not be refunded if you haven’t paid your yearly fees in advance or if you terminate cover after the cooling-off period.There are existing policy holders with old Whole of life or endowment policies that may have penalties. However, whole life policies are no longer available as the government made superannuation compulsory and they were replaced by term life policies.
Can life insurance be terminated because of illness?
No, your policy can’t be ended because of illness unless the policy is not guaranteed renewable. But, your insurer can cancel your policy due to non-payment or non-disclosure. Typically, as the policyholder, you have the right to end your cover for whatever reason.Is the life insurance provided by your superfund enough?
Generally, this depends on your requirements. However, you may find it more difficult to claim your insurance inside super as you’re typically required to meet your policies terms and conditions in addition to the SIS conditions of release.To decide whether it is the right option for you, ask yourself whether the coverage you have is sufficient protection for yourself and your family should you pass away or be unable to work because of illness or injury.
