Cancelling your life insurance

How to cancel a life insurance policy

Understand what this means

First and foremost, you need to understand the implications of cancelling your life insurance policy. Once you do this, you will no longer be covered if anything happens to you, regardless of any premiums that were paid prior. This means your beneficiaries will not receive any sum of money in the event of your passing.

Complete a letter of cancellation

To cancel your life insurance policy, you must complete a letter of cancellation. First up, check if your insurer has a template for this on their website. You can do this by simply searching for "cancel life insurance policy [provider name]". If they've got a template, download and fill it out.

If they don't have a template, here's what your letter of cancellation needs to include:

• Policy owner's name and signature
• Insurance company's name
• Date of cancellation
• Policy number
• Clearly state your intent to cancel the policy

Email, post or fax it to them

Based on the contact information your insurer has available on its website; email, post or fax your letter of cancellation to them. To ensure this has been received, it's wise to follow up with a phone call a few days later and to request an acknowledgement of your intent to cancel and whether or not this has been actioned by the insurer.

What to consider before you cancel your life insurance policy

It's important to be aware of what cancelling your life insurance means for both the now and the future. To be sure this is the right choice for your needs, it can help to consider the below.

• If you'll want life insurance again in the future. If yes, you need to consider what your eligibility will look like in the future. Just because you've been accepted once, doesn't mean you'll be accepted again. Your risk profile can change over time.
• Your age. If you're in your 70s and looking to cancel life insurance, be aware that it's unlikely you'll find cover again past the age of 74. In fact, some insurers won't accept you past the age of 55. If you think you'll want life insurance later on in life, take a minute to consider if your age will impact your eligibility.
• Your health. If you have developed any health conditions then the next time you go to take out life insurance (if you do), these will have to be listed as a pre-existing condition and your cover will likely exclude any claims relating to that condition. Of course, this is only an issue if you think you'll want to take out cover again in the future.
• Your debts. A big reason for holding a life insurance policy is knowing that your family would be able to continue to pay any debts (mortgages, car loans etc) in the event of your death. If you still have a substantial amount owing then it could be good to think twice before cancelling.
• Cancellation fees and loss of premiums paid in advance. If you've opted to pay your life insurance premium annually, and you're only half way through the policy year, then it's unlikely you'll receive a refund for the unused portion. If you're paying monthly, you'll likely just forgo that monthly payment. It's also worth checking if any cancellation fees apply too. You can find this information in your product disclosure statement (PDS) or on your insurer's website.

The only time you will receive a refund is if you're cancelling within your cooling off period.

Alternatives to cancelling your life insurance policy

If you're feeling a bit on the fence about whether or not cancelling your life insurance premium is the right move for you, consider some of these alternatives.

Switch insurers

A key reason for cancelling life insurance is the expense of the policy. If you still want life insurance cover but are looking for a more affordable option then it can be smart to get some new quotes, compare your options and switch providers.

Suspend your policy

If you're struggling to pay your premiums but don't feel ready to completely cancel your life insurance policy, then asking to suspend your policy can be a good option. This may also be referred to as pausing your policy. Essentially, it lets you put your cover on hold for a period of time — this time varies by insurers — and therefore pauses your premiums. Typically, policies can be paused for 3, 6 or 12 months.

It's important to note, pausing is not to be confused with freezing your premium. This refers to fixing your premium at a specific cost to keep it from rising over time. The terminology sounds similar but be aware, they're completely different actions.

Reducing cover

Oftentimes, there is room in your policy to reduce cover which will in turn, reduce your premium. Take a look at your policy and see if you've opted for any extras that no longer suit your budget. For example, you may find you've taken out optional cover for; trauma, total and permanent disability or income protection. Each of these would bump your premium up so if you're willing to cut them out, you can cut down your premium.

Another way to reduce your cover (and premium) is to reduce your sum insured. You might opt to do this if it's been a while since you originally took out cover and have substantially reduced your debts, therefore reducing the sum needed in the event of your passing.

Can an insurer cancel your life insurance policy?

Yes, insurers do have the right to cancel your policy if you do something that's against their guidelines. This can include:

• Failing to pay your premiums on time
• Failing to comply with your duty of disclosure
• Making a fraudulent claim

FAQs

• What happens if you cancel your life insurance in Australia?

  You'll simply no longer be covered for the benefits your life insurance policy provided. Your premium will not be refunded.

• Is there a penalty to cancel life insurance?

  There may be a cancellation fee to pay but otherwise, no. If you've paid your premium in advance then you won't get a refund but there's no additional penalty.

Written by

Peta Taylor

Publisher of Insurance

Peta Taylor is a publisher at Finder, working across all of insurance. She's been analysing product disclosure statements and publishing articles for over 2 years. Peta is passionate about demystifying complex insurance products to help users make well educated decisions with confidence. Peta is part of Finder's insurance awards team and works alongside editorial and insights experts to bring users the best insurance products every year. See full bio