As changes happen within your family, career, finances, or life, your life insurance needs may also change. If your term life insurance policy no longer makes sense for your circumstances, you may wonder if you can cash out term life insurance.
Term life insurance policies don’t accrue cash value like permanent policies, so, unfortunately, you can’t cash them out. Nevertheless, you have options. When necessary, you may choose to cancel your life insurance policy altogether. In many cases, however, making some changes can alleviate the financial burden of your policy so you can maintain your coverage.
Why would you cancel term life insurance?
A range of changes in your financial situation may reshape your life insurance needs. For example, losing a substantial portion of your income may force you to reconsider your term life insurance policy. You may have difficulty managing your monthly premiums if you’re suddenly laid off from your job.
Canceling your life insurance policy could also make some room in your budget following a financial emergency. A significant illness or injury in your family may result in both loss of income and an influx of medical bills. You may think about forfeiting your life insurance policy to free up funds for necessary expenses.
But not all reasons for canceling term life insurance are due to a financial burden. Suppose you were to inherit a substantial amount of money in a windfall. In that case, you may not feel you need a life insurance policy to protect your family’s financial well-being. Alternatively, you may choose to purchase a more expensive permanent policy. Likewise, in some cases, you may have chosen a term life insurance policy with a specific expense in mind, like a mortgage or college tuition. If you pay off those expenses before the end of your term, you may feel like your life insurance policy is no longer necessary.
While you can’t cash out your term life insurance, you can still update your policy to better fit your changing financial circumstances instead of canceling it altogether.
Alternatives to cashing out a term life insurance policy
If your term life insurance policy no longer meets your needs or your budget, you have options. While you can’t cash out a term life policy, you can still take steps to make managing your policy easier without sacrificing protection.
Consider changing the coverage amount or term
Many insurers allow you to change your policy’s coverage amount or term. If your life insurance needs change, you may not want to pay for more coverage than necessary. Or, if your premiums become difficult to pay each month, reducing your death benefit or term could bring down your monthly costs while still providing financial security for your loved ones.
Contact the insurer if the policy is too costly
If you find yourself struggling to afford premiums, you shouldn’t wait until you’re behind to speak with your insurer. Otherwise, you risk your policy lapsing. Your insurance provider may be willing to work out a payment plan with you. If not, they could help you explore other alternatives.
Request a new medical exam if your health has improved
Small positive changes in your health could help you reduce your life insurance costs. If you’ve quit smoking, lost weight, or even begun managing a condition with your doctor, you may improve your health grade. With a higher health grade, you may qualify for lower premiums. If you believe your health has substantially improved, you can request a new medical exam from your insurer.
Convert your term life policy to whole life
If you want a policy that can accrue cash value, you may have the option of converting your term policy to a permanent one. Some term life insurance policies, called convertible policies, include a conversion rider. With a convertible policy, you could expand your term life policy into a permanent policy without reapplying for life insurance. While your premiums would increase substantially, your health rating would remain unchanged. It’s best to speak with your insurance provider to determine whether your term life policy is convertible.
Cancel your life insurance policy
If you’ve explored your alternatives and they don’t address your needs, you could cancel your term life insurance policy. The cancellation process is relatively simple; you notify your insurer and stop paying premiums. You don’t receive any payout when you cancel a term life insurance policy.
It’s wise to speak with a financial professional before canceling your term life insurance policy. Because this option leaves your loved ones without coverage should you pass away, you’ll want to ensure you have other protection to support them financially in your absence.
Let Fidelity Life help you make the right life insurance decision
While you can’t cash out a term life insurance policy, you can change or cancel your coverage. Before you make a drastic change, it’s essential to consider all possible impacts on your family’s future economic security. Fidelity Life can help you navigate those challenging choices. To learn more about your life insurance options, speak with a licensed insurance agent working with Fidelity Life today.
