Why you shouldn’t cancel your life insurance when money’s tight

Have you caught yourself staring at the price tags in the grocery story and wondering why everything is getting more expensive? You’re not alone.

With the rising inflation rates and cost of living, it’s only normal for you to begin to consider ways to reduce your expenses. You might even be considering stopping some of your recurring payments. While this is great move, your life insurance policy payments shouldn't be one of them. Here’s why and what you can do instead. 

Your family's financial future might be at risk 

You bought your life insurance for an important reason, to protect your family financially in the unexpected event of your death. Cancelling your policy defeats this purpose and will leave your family exposed in the event of unforeseen circumstances. They might struggle with money and even end up in debt if there’s no income replacement option in your absence.  

Surrender charges and other charges might apply 

According to The Balance, surrender charges are the fees that your life insurance company takes out of your cash value if you cancel your policy before a specified amount of time. A surrender charge might apply for cancelling some life insurance policies before the period stated in your policy. Besides the surrender charges, you may also have to pay income tax on what you receive in the year you cancel your policy. In the long run, cancelling your life insurance policy might cost you more than you think. 

You might lose past premiums paid 

Depending on the type of life insurance policy you have and how soon after the effective date you are cancelling the policy, you might lose some or all the premiums you paid. Even in cases where you don’t lose your premiums because of the type of policy you purchased; charges might apply leading to a loss in value. Before you ditch your life insurance policy, consider the cash value as well.  

Coverage might be more expensive in the future 

It might seem like a smart idea to cancel your life insurance policy now and buy another one when inflation goes down. Unfortunately, as with most inflations, it’s difficult to predict how long they will last or how high they will go. As a result, you’ll most likely pay more for a life insurance policy when you’re ready to get another one. Many factors such as your age, inflation, the insurance market, etc. might be responsible for an increase in life insurance rates. 

Your loans might be at risk 

One of the benefits of having a life insurance is to ensure your beneficiaries can meet up with financial commitments in the event of your demise and this includes being able to pay the mortgage if you have one. Cancelling your life insurance policy could put a strain on your family financially if they have to worry about paying the mortgage on your home.

You might have more to lose than gain by cancelling your life insurance policy. Instead of cancelling your life insurance policy, you could consider these options instead: 

Update your advisor on health or lifestyle improvements that may lower your premium 

The state of your health plays a big role in determining your life insurance premiums. These premiums aren’t fixed and could be reevaluated if your health has improved significantly. Whether you’ve quit smoking, lost weight or experienced improved symptoms from a medical condition, there just might be room to lower your premium. Different insurers have their processes and requirements for reevaluating their insureds. You could speak to your advisor about this. 

You might be able to access cash value 

Depending on the type of life insurance policy you have and how long you’ve had it for, you might be able to use some of the cash value you’ve generated to pay your premiums. Discuss this with your advisor to see if this could be an option for you. 

Work with your advisor to explore other options 

Depending on the type of life insurance policy you have, there might be some options that could ease the financial pressure. For example, some insurers will allow you to reduce the amount of death benefit for lower premiums. You can readjust when you’re in a better place financially. Speak to your advisor to see what other options might be available for you.

While cancelling your life insurance might seem like an easy way to cut costs, remember all the great benefits of having a life insurance policy only applies while the policy is active.

If you’re finding it difficult to keep up with the premiums, set out some time to have a conversation me and we can brainstorm on the options that could work best for you.