14 min Read
05 Jul 2019

Written by Andy

Can you cancel life insurance? (and what happens if you do)

Cancelling life insuranceThe simple answer is yes you can, there is nothing stopping you cancelling your life insurance. In this article we explain how to cancel your life insurance, what will happen if you cancel your life insurance policy, how to reinstate a cancelled life insurance plan and provide some ideas on how to cut the cost of your life cover.

How to cancel a life insurance policy

The simplest way to cancel your life insurance policy is to cancel the direct debit with your bank. Most banks allow you to cancel direct debits online and so theoretically, cancelling your life insurance is a 2-minute job. Make sure that you are cancelling the correct direct debit, you can do this by checking the direct debit reference, as it will usually match your policy number. Life insurance premiums are paid monthly in advance and so you will usually be covered for 30 days after your last premium was taken.

Following the cancellation of your direct debit, the insurance company will normally write to you to advise that they were unable to collect the life insurance premiums; you can either contact them using the details on the letter to confirm the cancellation, or you can simply ignore the letter. An insurance company will usually try and collect premiums for a further 2 months (3 months in total) before closing the policy down.

Can you cancel a life insurance policy at any time?

Yes. Most life insurance policies are defined as 'pure protection'. That means that the premium you pay is purely protecting your life for the period that you pay your premiums and there is no savings or investment element to the policy. That means if you pay your premiums, you are protected. If you stop paying your premiums, the policy lapses and you are no longer covered. It is similar to other insurance products such as car insurance. Types of life insurance that are defined as 'pure protection' policies includes term insurance, mortgage decreasing life insurance and family income benefit. Check out our article 'Types of life insurance explained' if you are unsure of the type of life insurance you have.

Can you cancel a whole of life insurance policy?

Yes. If your whole of life insurance policy is defined as 'non-profit', then it is as a 'pure protection' product and has no investment element. You are free to cancel it at any time by cancelling your direct debit and the plan will simply lapse. Where this is slightly different is if you have a 'with profits' or 'unit-linked' whole of life insurance policy. With these types of policies, there is an insurance element as well as an investment element. If you cancel a 'with profits' or 'unit-linked' whole of life insurance policy, so long as you have paid the minimum amount of premiums (usually 12 months), the plan will be considered 'paid up'. This means that even though the policy has been cancelled, you will still be covered, however, each month, the policy will have to use the invested element of the paid premiums to service the life insurance element and so the amount you are insured for will reduce each month.

Can you cancel a mortgage life insurance policy?

Yes, but make sure you understand the consequences and that you have a plan in place should the worst happen. Although having a life insurance policy linked to your mortgage is not a legal requirement, the policy is in place to ensure that should you die, the mortgage is paid off. Having a mortgage life insurance policy in place ensures that your family can continue to live in the family home and lead the life that they have become accustomed to. Cancelling a policy linked to a mortgage should always be a last resort. A better solution would be to shop around to try and get a better deal or reduce the amount that you are insured for, rather than cancelling your policy altogether. We explain how to get the best and cheapest life insurance quotes later in this article.

What is a lapsed life insurance policy?

The definition of a lapsed life insurance policy is a policy where benefits have ceased due to unpaid premiums. A life insurance policy will be 'lapsed' by the insurance company after the first premium has been missed and it may remain in a lapsed state for between three to six months, depending on the insurance company.

Did you know: A lapsed life insurance policy can be reinstated

If your life insurance policy has been 'lapsed' due to missed premiums, then it is likely that you can reinstate your policy by catching up on the missed premiums. You will need to contact your insurance company and ask them to collect the unpaid premiums and if you had previously cancelled your direct debit, you will need to set up a new one. Reinstating a policy can sometimes end up being quite expensive, especially if your premiums have remained unpaid for 3 to 6 months. Before you reinstate your policy, it is worth checking how much it would cost to take out a new plan, as it may be more cost-effective. We explain how to do this below.

What is the difference between a lapsed life insurance policy and a cancelled life insurance policy

A lapsed life insurance policy is a policy that has been placed into a 'lapsed' state by the insurer due to unpaid premiums. A life insurance benefit will not be paid whilst in a lapsed state. A cancelled life insurance policy is a policy that has received an instruction to cease. This could either be by the policyholder (instructing the insurance company that they no longer wish to have the cover) or by the insurance company, advising a policyholder that the policy has been cancelled, usually as a result of continued unpaid premiums or non-disclosure.

Did you know: It may be cheaper to buy a new policy than to reinstate a lapsed policy

Reinstating a lapsed life insurance policy can be expensive. You will be expected to catch up on all of your missed premiums in order to continue receiving your life insurance benefits which, depending on your premiums, can end up costing hundreds of pounds. It may well be cheaper for you to simply take out a new policy. Remember though that the premiums will be based on your current health and so if you have suffered any ill-health, it may be better to keep your existing policy.

Life insurance premiums are also based on your age at the time of your application and so if it has been many years since you took out the cover, you may find premiums have increased since the time you took it out. That said, it has never been a better time to get a life insurance quote as the cost of life cover has come down in recent years, thanks to advances in medical science (meaning people are living longer) and technology.

If your life insurance is too expensive and you are thinking of cancelling your plan, here is how you can reduce the cost

Here we have provided 3 tips on how you to reduce the cost of your life insurance premiums, check out our article '5 ways to slash your life insurance premiums' for more information and tips.

  1. Don't over insure yourself - Can you reduce the amount you are insured for or reduce the length of the policy? If you have paid off debt or if your children are older, you may need less cover now then when you originally took out the policy
  2. Make sure you buy the right policy for you - There are many different types of life insurance policy and so it is worth ensuring you have the right plan in place. An independent specialist can help you with this and we talk about this in the section below.  Decreasing term assurance, for example, is a policy that will decrease over time in line with your debts and is far cheaper than a level life insurance policy, where the sum insured remains the same. Joint policies can often be cheaper, so if you live with someone and have individual policies, it may be worth considering combining the cover.
  3. Get healthy - Life insurance premiums are based on your health at the time of your application and so if your health has improved (if you have lost weight or given up smoking) then a new policy may be cheaper. We explain the best way to do this below.

Where to buy the cheapest and best life insurance policy if your policy has lapsed or been cancelled

If your life insurance has lapsed or been cancelled you should speak to an independent life insurance specialist who will be able to look at all of your options. An independent specialist will be able to assess your situation and advise whether it is better to try and reinstate your current policy or to take out a new one. They will be able to compare quotes from dozens of insurance companies and use their knowledge and expertise to work out the actual premium you will pay, based on your own unique personal situation (such as your current health, your family history, your job and any hobbies or pastimes).

An online comparison site or online life insurance calculator will only ever be able to give you an estimate on the total cost whereas an independent insurance specialist will speak to the insurance companies on your behalf and get an accurate quote, so you know exactly what you will pay before you apply.

We have personally vetted the services of a specialist insurance broker, which specialises in finding the most suitable cover for your own personal needs. An adviser will also be able to help you fill in the application forms, chase the insurance company on your behalf and even talk you through the process of putting your policy into trust (meaning any proceeds are paid without the need for your beneficiaries to pay inheritance tax).

To speak to an adviser, with no obligation to take things further, just fill in the form via the above link. The firm employs strong ethics and will only ever offer a policy if it is the best policy to suit your needs. If they are unable to offer a suitable policy or are unable to save you money then they will recommend that you try and reinstate your policy or recommend an alternative.

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