Life insurance is a product that just about everyone can benefit from. If you have children or a spouse, it’s important to make sure they are financially capable of continuing to live a quality life in the event of your death. But life insurance coverage can also make sense even if you’re single and don’t have children. After all, it’s wise to plan for end-of-life expenses so your family members don’t have to worry about those costs as they grieve.

However, everyone’s circumstances can change over time, and several life insurance products exist to meet those evolving needs. So, you may have grown out of your current policy, experienced life changes that reduced your coverage needs, or otherwise decided that it could be time to cancel your policy.

But canceling your life insurance is a decision that shouldn’t be taken lightly. The steps below can help you assess your life insurance needs and decide if a policy cancellation makes sense in your unique situation.

Step #1: Assess Your Financial Situation

Life insurance is ultimately a financial product. It’s an investment you make now to ensure that those you love are financially taken care of in the future when you die. However, your financial needs will likely change from time to time. For example:

• Weddings: Newlyweds will experience significant changes to their finances. In some cases, a wedding will bring a new source of income into the household, and in just about all cases, expenses rise as a single person becomes a family.
• Children: Children are an amazing addition to any family, but they also create significant financial responsibilities.
• Education: You may decide to further your education or start investing to ensure your children have an opportunity to seek a higher education. Of course, that comes with a cost.

These are just three examples of how your financial needs can experience big changes over time. So, it’s important to think about how your financial situation has changed when determining if you should cancel your life insurance policy. Here are a few tips to help you assess your current financial situation.

Review your current financial needs

Start by thinking about your general financial needs. These include things like rent or mortgage payments, utilities, debt payments, the cost of food, and other financial needs your life insurance policy will need to cover for your beneficiaries if you die.

As you assess your financial needs, you should also consider additional costs that your household would face if you were to pass away. For example, do you mow your lawn, take care of your children when your spouse is at work, or act as the handyman for your household? If so, all of these things could create an additional cost for your family if you weren’t there to take care of them. As you assess your financial needs, consider household financial needs that would take place if you weren’t there to manage your regular household tasks.

Evaluate your debt and assets

Debt is part of life for most Americans. The average American household has over $104,000 in debt according to the Motley Fool. That includes things like mortgages, auto loans, personal loans, credit cards and other revolving debts. However, most households have assets to fall back on. Those include things like your home, car, bank accounts, and other assets.

You should evaluate the balance between your household debt and assets before you decide if it’s time to cancel your life insurance policy.

Start by making a list of all of your debts. Next, make a list of your assets. Now, compare the two. Do you have more assets than debt? If so, you’ve got a positive net worth and, when you die, your assets will be enough to cover what you owe. If not, you may need your life insurance policy to fill in the gaps.

But even if you have enough assets to cover your debts, you may still need to keep your life insurance policy. After all, if your assets don’t exceed your debt enough to financially cover the needs of your beneficiaries, they’ll need further financial support when you’re gone. That support could be provided through your death benefit.

Consider your spouse’s income and savings

Life insurance is one of those products that you don’t necessarily buy for yourself. Instead, it’s something that you buy to take care of those you love. So, it’s important to assess the needs of those you love before you decide to cancel your life insurance policy.

In particular, if you’re married, think about your spouse’s income. Is it enough to give your spouse a meaningful quality of life when you die? If not, do you have enough combined savings to fill in the gap?

Once you assess your spouse’s income and savings, you can determine whether or not canceling your life insurance policy will have a detrimental impact on their quality of life when you die. If it will, you may be better served by keeping your policy intact.

Step #2: Re-evaluate Your Dependents

Your dependents are a crucial part of your life insurance policy. After all, there would be no need to purchase life insurance if you didn’t have dependents since this type of policy is designed to cover those you leave behind.

Then again, your dependents may change over time. Some common changes include:

• Marriage or Divorce: If you got married since you purchased your policy, you’ll likely need to add your spouse as a dependent on your life insurance policy. On the other end of that spectrum, divorce may lead to your ex-spouse being removed from your policy as a dependent.
• Children: If you’ve had children since you opened your life insurance policy, you’ll likely need to update your beneficiaries to add your children to the mix. However, if your children have become adults since you purchased your policy, you may not need coverage for them anymore.
• Other Friends and Family: You’ll likely add and remove people from your inner circle over your lifetime. As you do so, it’s important to consider how these changes impact your beneficiary needs.

Here are a few tips that may help as you evaluate the needs of your dependents:

Assess the financial needs of your children

The financial needs of your children will change over time. Young children may have increased expenses for things like daycare and other needs. However, older children and adult children will demand less from your life insurance policy. As you assess the financial needs of your children, consider the following:

• Their Age: The younger your children are, the more they will likely depend on you. So, it may be a mistake to cancel your policy if you have young children.
• Their Financial Dependence on You: Do your children depend on you for 100% of their financial stability? Or are there other factors to consider? For example, adult children may not depend on you at all, or they may still live in your home and be completely dependent on you. Also, young children may be wholly supported by you or that burden may be spread between multiple parents.
• Education: Do you plan on paying for your children’s education after grade school? If so, who would cover the bill if you passed away? This is something to consider strongly as you think about canceling your life insurance policy.

Consider your spouse’s earning potential

According to the U.S. Bureau of Labor Statistics, over half of American households operate on two incomes. That’s an important consideration for those considering canceling their life insurance. While there are undoubtedly some two-income households that could survive on one income or the other, many of those with two incomes rely on both of them to live a high-quality lifestyle.

With that said, you should think about your spouse’s earning potential before you decide to cancel your life insurance policy. If your spouse is the sole or primary breadwinner in your household and you determine that your income isn’t necessary for a good quality of life, it may be time to cancel your policy. However, if you conclude that without your income your spouse would need to make significant financial sacrifices, canceling your policy could prove to be a mistake.

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Step #3: Review Your Policy’s Term

There are several different life insurance policy types to choose from, but they all fall into a few categories. Those include term life insurance and permanent life insurance, which includes whole life insurance. As their names suggest, term life insurance covers you for a specific period of time, while permanent and whole life insurance offer coverage until you die as long as you pay your premiums.

If you have term life insurance, you should strongly consider your term before you decide to cancel coverage. After all, your term needs may change. Below are a couple of tips to help you evaluate your current term and determine if canceling life insurance makes sense.

Check if your term life insurance policy is nearing its end

Term life insurance policies typically last anywhere from 5 to 30 years, though some policies will have shorter or longer terms. Regardless of how long your original life insurance policy term was, it’s important to think about how much time is left on your term.

Did you purchase a 15-year policy about 14 years ago? If so, your policy is nearing its end, and it may be time to start shopping around. Keep in mind that life insurance premiums are significantly impacted by your age and health. So, it may make sense to cancel your current policy now and start a new policy while you’re still a year younger and likely healthier than you will be in the future.

However, if you purchased a 15-year policy three years ago, you still have quite a bit of time left on your term. Canceling your policy now and hoping to sign up for a lower-cost policy now or in the future may not be the best option.

Evaluate the need for continued coverage

You may have decided you needed a 30-year life insurance policy when you originally purchased insurance but realized that need has changed. Several life events can lead to a lack of need for life insurance. Whether your children have grown up and become financially stable or a divorce led to you no longer needing to think about your spouse’s financial needs, you may decide that you don’t need continued coverage.

However, that works both ways. If you’ve recently had children, gotten married, or even started a business, continued coverage may be a must.

Step #4: Consider Cash Value

Whole and permanent life insurance policies typically build cash value as you pay your premiums. That cash value could come in handy – especially in today’s economy with prices for consumer goods, housing, and other items rising so quickly.

If you’re thinking about canceling your permanent life insurance policy for financial reasons and need an infusion of cash in your household, take a look at your current cash value. If the cash value component of your life insurance policy will help relieve financial stress in your household, a cancellation may not be worthwhile. However, if your policy has no cash value, canceling it now would simply mean that you would lose the death benefit you’ve paid premiums for over the years.

Step #5: Consult a Licensed Insurance Agent

You could read article after article about whether or not it’s wise to cancel your life insurance policy and still be at a loss. After all, the decision to cancel your policy is a significant financial decision that shouldn’t be taken lightly.

If you want to ensure you make the right decision here, you should strongly consider reaching out to an insurance agent. Then they can help you make an educated decision as to whether or not it’s time to cancel your policy. The team of agents at Fidelity Life can help you with questions you may have about your insurance coverage needs. Contact us at 1-866-912-7775 today.

The Bottom Line

The decision to cancel your life insurance is a serious one that shouldn’t be taken lightly. As you make your decision, you should consider your current financial situation, your dependents, the term of your policy, and whether or not that policy has a cash value component. If you’re still not sure after considering these factors, consult a licensed insurance agent to make a more educated decision.

At Fidelity Life, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed, and updated regularly to ensure the information is as relevant as possible. We encourage you to speak with your insurance representative if you have additional questions and make sure you read your policy contract to fully understand your coverage.