Can My Life Insurance Company Ever Cancel My Policy?

Life insurance documents

If you have purchased whole life insurance, your policy should continue in effect until you die, at which time death benefits are paid to your beneficiaries. If you have purchased term life insurance, it should continue until the expiration date of the policy. Although you can cancel your life insurance policy at any time, the insurance company can only cancel for specific reasons. For example, your insurer cannot cancel your policy if you become ill, begin an unhealthy habit (such as smoking or drinking), move to a different area, or buy other life insurance.

Under What Circumstances Could Your Life Insurance Company Cancel Your Policy?

An insurer can only cancel a life insurance policy for one of two reasons – nonpayment or fraud.

Nonpayment

Your life insurance premiums are due on a specific date. After that date passes, most insurance companies allow a grace period, typically 30 days. If you pay within the grace period, your life insurance policy remains in place. However, when the grace period has passed, if payment has not yet been received, the insurance company can cancel your policy. If you ask, you may be able to have your policy reinstated, but it is essential that you act quickly. The more time that has passed since the coverage has lapsed, the more trouble you could encounter solving the issue. To protect yourself against cancellation for nonpayment, you can set up automatic payments of your life insurance premiums from your bank account or credit card.

Fraud

Lying on your application for life insurance is grounds for cancellation of your policy. If there were falsehoods in your application that the insurance company did not discover during the application process, your policy could be cancelled if those falsehoods should become known during the first one or two years of the policy (the contestability period). Cancellation of the policy is not the only risk involved with providing false information on a life insurance application. If fraud is discovered after the insured dies, the life insurance company could refuse to pay out the death benefits. To avoid cancellation for fraud, you must be completely truthful on your life insurance application.

What If You Have a Health Crisis After Buying Life Insurance?

If your health is suddenly in crisis after you purchased a life insurance policy, continue paying your premiums on time, and your policy will remain in effect until your death (in the case of whole life insurance) or until the end of the policy term (in the case of term life insurance). If you have a whole (permanent) life insurance policy, it may have accumulated cash value that you can borrow against to help recover the costs of your medical bills. If your policy contains an accelerated death benefit rider, you may be eligible to receive part of the death benefit while still living. This benefit may be paid out in installments or in a lump sum. Our knowledgeable agent can advise you on your options with your existing life insurance policy if your health should fail.