When an insurance company cancels a policy what is the method used to determine the premium date?

Having a life insurance policy is important for your family's financial protection, but there are some reasons to cancel your coverage that can make good financial sense. For example, once you pay off your debts, you no longer need a policy to cover them when you pass away.

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Canceling during the free look period
How to cancel a term life insurance policy
How to cancel a whole life insurance policy
When should you cancel a life insurance policy?
Do you get money back when you cancel a life insurance policy?
Alternatives to canceling life insurance
Can your insurance company cancel your life insurance policy?
Frequently asked questions
When an insurance company cancels a policy what is the method used to determine the premium due?
What is a method of canceling the contract of insurance?
What is the name for the termination of an insurance policy before the expiration date?
When an insurer cancel a policy and only retains earned premium this is?

Canceling your life insurance policy can be as simple as calling your insurance provider or skipping any future premium payments. But the impact of canceling depends on how long you’ve had your policy and whether you have term life insurance, which is simpler to cancel, or whole life insurance, which is more complex and can come with cancellation fees.

If your main reason for canceling coverage is affordability, there are ways to lower your premiums without losing your insurance protection. Speak with one of our licensed agents to find the best option for your circumstances.

Key takeaways

You won’t get a refund of the premiums you’ve paid unless you cancel during the free look period.
You can cancel your life insurance policy at any time.
There are penalties for canceling permanent life insurance during the first several years of the policy.
If you cancel a whole life policy you may receive a cash surrender payout, which could be taxed.

Canceling term insurance is much simpler than canceling whole insurance. With either type of coverage, you can cancel your life insurance policy at any time. But, when you cancel your policy affects whether you’ll be able to get any of your money back.

Canceling during the free look period

If you immediately regret your life insurance purchase, you can cancel it without penalty or cost during the free look period, which begins as soon as your policy is delivered to you. If you cancel during the free look period, any premiums you’ve paid are fully refunded.

Free look periods last 10 to 30 days, depending on your insurer and regulations in your state.

How to cancel a term life insurance policy

There are a few ways to cancel a term life insurance policy.

Stop paying premiums. If you miss a premium payment and don’t pay it within the grace period— the 30 to 31 days after your due date during which you still have coverage — your insurance is canceled.
Write a letter. Provide written notice to your insurer that you’d like to cancel your policy. Some policies detail in their contracts that issuing a stop-payment order for your premiums is considered written notice, but you can also write a very simple letter. Here’s an example of a term life insurance policy cancellation letter:
Dear INSURER,
I’m writing to cancel my policy, effective DATE.
My policy number is POLICY NUMBER.
Please return any unused premiums to ADDRESS.
Sincerely, NAME
Check your provider’s website too — some may have a way to submit notice online.
Call your provider. Most life insurers can cancel your policy over the phone, or at least start the process for you. Have your policy number handy and an agent can guide you through the steps.

No matter how you choose to cancel your policy, there’s no penalty or fee for ending term life insurance coverage.

How to cancel a whole life insurance policy

Canceling a whole life insurance policy takes more than just stopping payments. Each policy has slightly different forfeiture rules, so start with a call to your insurer. Your options will depend on how long you’ve owned the policy and your insurance company’s rules, but there are usually three choices:

Cash out the policy. Whole life insurance has a cash value account, which earns interest over time. Every policy has a cash surrender value, which is the cash value amount minus fees and penalties. Penalties for cashing out apply during the surrender period, which can last a decade or more. Interest earnings are also taxed as income if you cash out.
Let it lapse. Some insurers automatically cash out your whole life policy and let the coverage lapse if you stop making payments. Other types of permanent insurance, like universal life insurance, automatically use your cash value to fund your premiums if you stop paying. This depletes the payout you’d get from canceling the policy, and when the cash runs out, your policy lapses. In either scenario, you can be charged surrender fees and taxes.
Opt for reduced paid-up insurance. This option comes with the fewest fees. A reduced paid-up option allows you to stop paying premiums in exchange for a lower death benefit. The reduced benefit is based on the premiums you’ve already paid, and coverage lasts for life. Even though the potential payout is much smaller, a reduced paid-up option doesn’t come with penalties and maintains some amount of insurance protection.

→ Learn more about how to cancel whole life insurance

When should you cancel a life insurance policy?

It’s important to have life insurance coverage if you have dependents or shared debts, but there are legitimate reasons to consider canceling your policy. For example, you might:

Find more affordable coverage elsewhere
No longer need a policy (for example, your kids are out of school and your mortgage is paid off)
Want to cash out the cash value amount

Do you get money back when you cancel a life insurance policy?

Whether you’ve been paying life insurance premiums for months, years, or decades, you’ve put a lot of money toward your policy. Will you get any of it back? Probably not.

There are only two ways to get some of your premiums refunded if you cancel your coverage:

Cancel during the free look period: As mentioned above, you’ll get your initial premium payment back if you cancel during the 10 to 30 day free look period.
Cancel in the middle of a billing cycle: If you cancel mid-payment cycle, your insurer will refund you for the time between your cancellation date and the next payment date. Any other premiums you’ve paid aren’t refundable.

Alternatives to canceling life insurance

Canceling your life insurance policy isn't advisable if anyone still counts on your financial support. Ending your coverage not only leaves your loved ones unprotected, it forfeits your current rates. If you decide you need a policy in the future, your premiums will be higher.

If your policy no longer fits your needs or budget, there are ways to lower your premiums or adjust your coverage without completely losing life insurance protection.

Arrange for the cash value of the policy to pay your premiums. If you have a permanent policy, you may be able to use the cash value to cover your premiums until you can afford to pay them out-of-pocket.
Ask for a new medical exam. If you’ve lost weight, quit smoking, or made another significant lifestyle change, you could qualify for lower premiums. Most life insurance companies offer reconsideration once you’ve had your policy and maintained positive lifestyle changes for at least a year.
Lower your coverage amount. Most insurers let you decrease your coverage amount at least once, which can make your premiums more affordable and help you customize your coverage to your current financial obligations.
Shop for a new policy. It's possible that your current policy needs or health improvements could earn you lower rates with a different insurance company. Work with a broker to compare quotes and replace your existing policy.

A life insurance agent can walk you through the best option for your circumstances and help you make any necessary adjustments.

Can your insurance company cancel your life insurance policy?

Your insurance company can only cancel your policy in very specific instances detailed in your policy contract.

Insurance regulations prevent insurance companies from canceling coverage except in cases involving:

Non-payment of premiums: If you don’t pay your premiums within the grace period, your policy is terminated.
Fraud: The insurance company can cancel your policy if you were intentionally dishonest on your application. This could apply even after the contestability period, when an insurer has the right to investigate your cause of death.

Your insurance company cannot cancel your policy for any other reason, including if you start smoking, pick up a dangerous hobby, or get sick.

One exception is that an employer can choose to cancel a group life insurance policy at its discretion. You also lose group coverage when you leave your company.

The steps for canceling your life insurance are straightforward, but the impact may not be. Before you end your coverage, find out what the potential penalties would be and confirm that your loved ones will still be protected.

Frequently asked questions

How do I cancel my life insurance policy?

You can cancel term life insurance by stopping premium payments or contacting your insurer. To cancel whole life insurance, call your insurer to discuss cancellation options and potential fees.

Can I cancel my life insurance policy at any time?

Yes. Canceling term life insurance comes with no penalties. Insurers charge a fee if you cancel whole life insurance during the surrender period, which is subtracted from your policy’s cash value.

Do I get my money back if I cancel my life insurance policy?

You don’t get money back after canceling term life insurance unless you cancel during the free look period or mid-billing cycle. You may receive some money from your cash value if you cancel a whole life policy, but any gains are taxed as income.

When should I cancel my life insurance policy?

Reasons to cancel your coverage include no longer needing coverage once your debts are paid or switching to a cheaper policy.

When an insurance company cancels a policy what is the method used to determine the premium due?

Short Period Rate (old short rate) A penalty method of calculating the return premium often used when the policy is canceled at the insured's request. It uses a table of factors that results in penalties that can be lower or higher than short rate (90% pro rata) depending upon the date of cancellation.

What is a method of canceling the contract of insurance?

There are three common cancellation methods of cancellation: pro-rata, short-rate, and flat rate. Pro-rata cancellation refers to policy termination earlier than its maturity, either at the request of the insured or at the behest of the insurer.

What is the name for the termination of an insurance policy before the expiration date?

Cancellation — the termination of an insurance policy or bond, before its expiration, by either the insured or the insurer.

When an insurer cancel a policy and only retains earned premium this is?

Flat Cancellation The cancellation of an insurance policy or bond as of its effective date, before the insurer has assumed liability. This requires the return of paid premium in...