Many West Chester, PA residents have taken life insurance to protect their loved ones’ financial well-being in case they pass away. However, you might be considering canceling your life insurance policy. Therefore, you might wonder – what happens if I cancel my life insurance? Well, it depends on the type of life insurance you have.
Term Life Insurance
In most cases, if you cancel your term insurance, you won’t get your premiums back. However, if you took a convertible term life policy, you can sell the policy to recoup some of your premiums instead of canceling it. Additionally, you have a "return of premium" feature on your policy; we at Griffith Insurance LLP advise that you try to outlive the policy’s term rather than canceling it. Your premiums will be refunded if you outlive the policy’s term. Remember that adding a "return of premium" feature to your policy will make it more expensive.
Whole Life and Universal Life Policies
Since whole life and universal life policies have a cash value component, you will likely receive some cash if you cancel them. However, how much amount of money you receive will depend on the age of the policy. The older your policy, the more cash value it accrues and vice versa. If you cancel your whole life or universal life policy after a couple of years, likely, it hasn’t accrued a considerable amount of cash value. Thus, you may have to incur surrender fees on the cash value, significantly reducing the amount of money you receive. On the other hand, if your policy is decades old, it might have significant gains. However, these gains will be viewed as taxable income if you cancel the policy, which will be taxed, and you will get less money.
Do you need help figuring out your life insurance in West Chester, PA? We at Griffith Insurance LLP are ready to help. Call us today.