Can You Get Money from Cancelling a Life insurance Policy?
There are various different forms of life insurance policies. While they primarily have the same purpose, many of them operate differently, including when it comes to compensation. Only cash value policies offer cash if your policy is cancelled.
What is a Cash Value Life Insurance Policy?
A cash value life insurance policy is a type of whole life insurance, also sometimes known as a universal life insurance policy. This life insurance allows you to place a portion of your premiums into a type of savings or investment. As you pay premiums, you may be able to withdraw a portion of cash value from the savings account. This should not affect the benefits that accumulate for your beneficiaries.
You may take out cash any time once premiums have been paid and money has been deposited.
Cash value only applies to certain whole life insurance policies. This is not available on term life insurance policies, which only cover you for a certain amount of years as agreed on the policy, such as 10, 20 or 30 years. If you cancel a term life insurance policy or your coverage lapses, you will not receive any cash value for the policy.
Not all policies offer cash value. Cash value whole life insurance policies generally cost more than a basic whole life insurance policy, so some people opt for a whole life insurance policy without cash value.
What Happens if You Cancel a Cash Value Life Insurance Policy?
If you cancel a basic whole or term life insurance policy, you will not receive compensation for the premiums you paid. The same applies if you outlive your term policy. Instead, your coverage will simply end, and you will have to purchase another policy if you want to be covered again.
If you have a cash value life insurance policy, however, you may receive cash value for the cash you put into the savings section of your life insurance policy. Keep in mind that if you cancel or outlive a life insurance policy, your beneficiaries will not receive benefits as detailed on the policy as a result of the policyholder’s death. The money you withdraw may be taxed, however, and will not be added to the death benefit. If a policyholder with a cash value policy dies while the policy is active, for example, the insurer will keep the accumulated cash value while the beneficiaries will receive only the amount agreed upon through the policy.
Can My Insurance Provider Cancel My Life Insurance Policy?
There are very few occasions in which an insurance provider would cancel a client’s life insurance policy, but it does happen. Insurance providers generally try their best to keep clients, as clients are how they make money, but sometimes a client is too risky to continue to insure.
One of the reasons a provider may cancel your life insurance policy is nonpayment. Just like with any other policy, you are expected to pay a certain amount in monthly premiums for your life insurance. If you miss too many of these payments or stop paying completely without notifying your insurance provider, your policy may be canceled.
The other main reason a life insurance claim may be denied is fraud, or false claims. If a beneficiary tries to file a claim on a policy of an insured party who hasn’t passed away or if an insured party tries to pull out money from a policy that doesn’t allow cash back, the insurance provider has the right to cancel the policy due to fraudulence.
Can Insurance Providers Cancel a Policy Without Warning?
Most insurance providers are required to give at least a 30-day warning before canceling a policy. Keep in mind that you generally do not receive any money back for a cancelled policy. For example, if you have been paying premiums on a life insurance policy for the past two years, you will not receive any of that money back for the policy being cancelled. Be sure to take the appropriate measures to avoid your insurance policy being cancelled.
Can You Stop an Insurance Provider from Cancelling You?
In some instances, you may be able to haggle with your insurance provider to prevent cancellation. This is especially true if you’ve missed payments because of unexpected changes out of your control, such as being laid off and work shutting down due to a government mandate. They will likely ask that you pay a fee for your missing payments, however. An argument is more effective if your circumstances have changed and you now have a way to pay your premiums on time.
If the issue was missing your payments, most insurance providers offer automatic drafts. Setting up automatic payments from your bank account can prevent you from missing a payment.