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If you no longer want to continue with your coverage, you may be wondering, Can you cancel life insurance? Or maybe you’re currently investigating how to cancel life insurance policies in case you decide to stop yours in the future.

Whatever your reason, this post will guide you through the cancellation processes for both term life and whole life insurance policies. We’ll also provide some alternatives to canceling your policy.

First, Can You Cancel a Life Insurance Policy?

You can usually cancel your life insurance policy at any time if you decide that you no longer want or need the life insurance coverage it provides. How that’s done will vary, based on how long you’ve had the policy (meaning, if it’s brand new or not) and whether it’s term life or whole life insurance policy.

How to Cancel Life Insurance

In each state, there’s a “free look period,” during which you can cancel a life insurance policy for any reason by appropriately informing the insurer. You can find timelines of the free look period in your policy. A typical period will last 30 days from when your policy begins, but it can be as short as 10 days, depending upon the state in which you live.

If you cancel during this timeframe, you’re entitled to a refund of your first premium payment without penalty. After the free look period ends, how you cancel your life insurance policy will depend on what type of life insurance it is. (Though there are other types of life, we’ll focus on term and whole life insurance here.)

Canceling Your Term Life Insurance Policy

Term life insurance guarantees payment of a predefined death benefit when the policy owner dies during a specified term. After the term ends — perhaps after 10 or 20 years — the policyholder might renew the life insurance for another term, decide to let the policy end, or convert it to a whole life policy. Or, before the policy’s term ends, you can cancel the policy. Here’s how.

Inform the Insurer

Check the insurance company’s website to see if they have a termination form, or write them a letter to let them know you are canceling your policy. You could also call your provider to get the process started. It’s really that simple when it comes to communicating your desire to cancel with the insurer.

Stop Making Your Payments

If you’re having the payment automatically deducted from an account, check to see how much notice you have to give the financial institution to stop the next payment. The Consumer Financial Protection Bureau offers advice on stopping automatic payments.

It’s true that, if you simply stop making your premium payments, the insurer will void your policy. How long that would take would depend upon the policy’s conditions. Although this may be the easiest route to take, informing the insurance company ties up loose ends.

Canceling Your Whole Life Insurance Policy

A whole life insurance policy never expires (as long as the premiums are paid). Policyholders typically pay a higher premium, with a portion of the amount being invested. The invested funds can then be drawn upon by the policy owner. Because of this, you actually surrender a whole life policy when you want it to stop rather than cancel the policy.

Consider the Cash Value

As you pay into this policy, you’ll gradually build up cash value. It may take 10 years or so for that to happen but, when it does, surrendering (canceling) your policy may mean that you’ll get a check from the insurer for the cash value built up in the policy.

Investigate Collateral Approach

If a whole life policy has a reasonable amount of cash value, then the policy may be able to be used as collateral for a loan instead of surrendering it. If the loan isn’t repaid, then the outstanding balance and interest owed would be deducted before the death benefit was paid out to beneficiaries.

Modify Your Policy

Your insurance company may allow you to reduce your whole life premiums (or even stop paying them) while still maintaining some (or all of the) death benefits for your beneficiaries. In those cases, the premiums would be paid out of the cash value in the policy. Talk to your agent first, though, to make sure this is doable.

Do You Get Money Back if You Cancel Life Insurance?

With a term life insurance policy, when you cancel, it’s unlikely that the insurer will refund any premiums made and the death benefit to beneficiaries no longer exists. So, with term life, the answer is “no.”

With a whole life policy, though, if you’ve built up cash value, that will be provided to you after you surrender the policy, although any surrender fee is typically taken out first. When you cancel a whole life policy, ask how much money will be refunded as well as when and how you’ll get any funds back.

When Should You Cancel a Life Insurance Policy?

People cancel their policies for a variety of reasons. Here are some examples of when it may make sense to cancel your life insurance policy:

You no longer need it: Some people simply may feel they no longer need the policy — perhaps because the dependents listed as beneficiaries are no longer in need of this money, or because they, the policyholders, no longer have debt that would need to be paid off.

Your premiums are straining your budget: Other times, the premiums are too much for the person’s budget, so they decide to cancel. Perhaps, through this action, they can also collect on the policy’s cash value for needed funds.

You can qualify for a better rate on a new policy: A policyholder may have made lifestyle changes (stopped smoking) or their health may have improved — and so they can now qualify for a better rate on a new life insurance policy. Keep in mind that, depending on how old you are, the premium may be the same or higher than the lower-rated policy.

You want to invest your premiums in another way: As another reason, some people cancel a whole life insurance policy and then invest the premiums paid (and any cash value refunded to them) in another way where they hope to earn more money.

Alternatives to Canceling Life Insurance

Talk to your insurer to see what options exist if you plan to cancel your life insurance policy. One possibility already mentioned in this post is to see if you can have your whole life premiums paid out of your cash value in part or in full.

Or, if you think you still need life insurance but the premiums are too high for your budget, you can consider ways to adjust your budget to keep making your payments. For example, there may be subscriptions for streaming services or online tools that you automatically pay for but seldom use. You could consider canceling those services and continuing to make your life insurance premiums with those newly available funds.

Another possibility, if you’d like to cancel a life insurance policy and then buy another one that’s better for you, is to consider looking into what’s called a tax-free 1035 exchange. This can allow you to make the switch without tax consequences.

Also, check your policy to see if life settlements are permitted. In that situation, the policy is transferred to a new owner, and you could receive cash in a lump sum. Just make sure to explore tax consequences if this option appeals to you.

The Takeaway

You can cancel a life insurance policy, and it’s pretty easy to do. Whether or not you’ll get money back depends on the type of policy you have. With a term life insurance policy, there isn’t any cash value and so you wouldn’t typically get any refund. With a whole life insurance policy, if you’ve paid enough into the policy to have cash value, then you would usually get some money back after surrendering the policy.

Reasons why someone cancels a policy vary and there are alternatives to canceling. If you’re looking into buying a life insurance policy, SoFi has teamed up with Ladder to provide competitive term life insurance that’s easy to understand and quick to set up.

Photo credit: iStock/PeopleImages

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Coverage and pricing is subject to eligibility and underwriting criteria.
Ladder Insurance Services, LLC (CA license # OK22568; AR license # 3000140372) distributes term life insurance products issued by multiple insurers- for further details see ladderlife.com. All insurance products are governed by the terms set forth in the applicable insurance policy. Each insurer has financial responsibility for its own products.
Ladder, SoFi and SoFi Agency are separate, independent entities and are not responsible for the financial condition, business, or legal obligations of the other, Social Finance. Inc. (SoFi) and Social Finance Life Insurance Agency, LLC (SoFi Agency) do not issue, underwrite insurance or pay claims under Ladder Life™ policies. SoFi is compensated by Ladder for each issued term life policy.
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All services from Ladder Insurance Services, LLC are their own. Once you reach Ladder, SoFi is not involved and has no control over the products or services involved. The Ladder service is limited to documents and does not provide legal advice. Individual circumstances are unique and using documents provided is not a substitute for obtaining legal advice.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Deflation is essentially the opposite of inflation. It occurs when the prices consumers pay for goods and services goes down. That means that consumers can purchase more with the same amount of money.

There are many factors that cause deflation, which happens when the supply of goods and services is higher than the demand for them. While deflation can have some benefits to consumers, it’s often a sign of trouble for the overall economy.

What Happens During Deflation?

In addition to knowing what inflation is, it’s important to understand how it impacts the economy. In a deflationary economy, prices gradually drop and consumers can purchase more with their money. In other words, the value of a dollar rises when deflation happens.

It’s important not to confuse deflation with disinflation. Disinflation is simply inflation decelerating. For example, the annual inflation rate may change from 5% to 3%. This variation still means that inflation is present, just at a lower rate. By contrast, deflation lowers prices. So, instead of prices increasing 3%, they may drop in value by 2%.

Although it may seem advantageous for consumer purchasing power to increase, it can accompany a recession. When prices drop, consumers may delay purchases on the assumption that they can buy something later for a lower price. However, when consumers put less money into the economy, it results in less money for the service or product creators.

The combination of these two factors can yield higher unemployment and interest rates. Historically, after the financial crises of 1890, 1893, 1907, and the early-1930s, the United States saw deflationary periods follow.

How Is Deflation Measured?

Economists measure deflation the same way they measure inflation, by first gathering price data on goods and services. The Bureau of Economic Analysis (BEA) and the Bureau of Labor Statistics (BLS) record and monitor this type of data in the United States. They collect pricing information that they then put into buckets reflecting the types of goods and services consumers generally use.

While these buckets do not include every product and service; they offer a sample of items and services consumed. In the United States, economists incorporate these prices into an indicator known as the Consumer Price Index (CPI).

Then, economists can compare the CPI to previous years to determine whether the economy is experiencing inflation or deflation. For example, if the prices decrease in a period compared to the year before, the economy is experiencing deflation. On the other hand, if prices increase compared to the previous year, the economy is experiencing inflation.

What Causes Deflation?

Deflation comes from a swing in supply and demand. Typically, when demand dwindles and supply increases, prices drop. Factors that may contribute to this shift include:

Rising Interest rates

When the economy is expanding, the Federal Reserve may increase interest rates. When rates go up, consumers are less likely to spend their money and may keep more savings to capitalize on the increase in rates.

Also, the cost of borrowing increases with the rise of interest rates, further discouraging consumers from spending on large items.

Decline in Consumer Confidence

When the country is experiencing economic turbulence, like a recession, consumers spend less money. Because consumers tend to worry about the direction of the economy, they may want to keep more of their money in savings to protect their financial well-being.

Innovations in Technology

Technological innovation and process efficiency ultimately help lower prices while increasing supply. Some companies’ increase in productivity may have a small impact on the economy. While other industries, such as oil, can have a drastic impact on the economy as a whole.

Lower Production Costs

When the cost to produce certain items, such as oil, decreases, manufacturers may increase production. If demand for the product stagnates or decreases, they may then end up with excess supply. To sell the product, companies may drop prices to encourage consumer purchases.

Why Does Deflation Matter?

Although falling prices may seem advantageous when you need to purchase something, it’s always not a good sign for the economy. Many economists prefer slow and unwavering inflation. When prices continue to rise, consumers have an incentive to make purchases sooner, which further boosts the economy.

One of the most significant impacts of deflation is that it can take a toll on business revenues. When prices fall, businesses can’t make as much money.

The drop in business profits makes it challenging for companies to support their employees, leading to layoffs or pay cuts. When incomes go down, consumers spend less money. So deflation can create a domino effect impacting the economy at many different levels, including lower wages, increased unemployment, and falling demand.

Deflation During The Great Depression

The Great Depression is a significant example of the potential economic impact of a deflationary period. While the 1929 stock market crash and recession set this economic disaster off, deflation heavily contributed to it. The rapid decrease in demand along with cautious money hoarding led to falling prices for goods and services. Many companies couldn’t recover and shut down. This caused record-high unemployment in the United States, peaking at 25%, and in several other countries as well.

During this time, the economy continued to experience the negative feedback loop associated with deflation: cash shortages, falling prices, economic stagnation, and business shutdowns. While the United States has seen small episodes of deflationary periods since the Great Depression, it hasn’t seen anything as substantial as this event.

How to Manage Deflation

So, what can the government do to help regulate inflation? For starters, the Federal Reserve can lower interest rates to stimulate financial institutions to lend money. The Fed may also purchase Treasury securities back to increase liquidity that may help financial institutions loan funds. Those initiatives can increase the circulation of the money in the economy and boost spending.

Another way to manage deflation is with changes in fiscal policy, such as lowering taxes or providing stimulus funds. Putting more money in consumers’ pockets encourages an increase in spending. This, in turn, creates a chain effect that may increase demand, increase prices, and move the economy out of a deflationary period.

The Takeaway

Deflation refers to a period that can be thought of as the opposite of inflation. It occurs when the prices consumers pay for goods and services goes down, which means that consumers can purchase more with the same amount of money.

When the economy is experiencing some turbulence, some investors may choose to keep their money in savings. On the other hand, other investors may see falling prices as an opportunity to purchase securities at a discount, either to hold or to sell when the economy recovers. Like any other investment strategy, investors must base their investment decisions on their personal preferences since there are no guaranteed results.

Ready to invest in your goals? It’s easy to get started when you open an Active Invest account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

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