Ideally you pick a life insurance policy that you keep forever. However, there are times when you need to cancel. There are a couple ways to cancel. The first way is over the phone. If you cancel over the phone, the customer service rep will stop automatic payments and mail you a cancellation form. Here is the problem: customer service reps are trained in retention. For instance, they might bring up the contestability period, which is a common scare tactic.
You can bypass the customer service rep by faxing a written cancellation request (don’t forget to sign your name). You might need to call the insurance company for the correct fax number, but they will freely give that information without pushback. In your written request, you should mention the effective date of cancellation and the policy number. You should also include a statement that says your decision is final and you don’t wish to discuss it with an agent. That last part is necessary because insurance companies will sometimes call your agent so he or she can talk you out of it. If you are cancelling a policy with cash value, make sure you read my article on nonforfeiture options before you cancel.
I often say that no amount of Houston life insurance is too much because it never goes to waste. However, there is an exception to the rule that I’ll discuss.
Many people buy life insurance when a doctor or funeral reminds them of their own mortality. People sometimes spend more than they can afford when the decision to buy is spurred by emotion. If you think emotion is influencing your decision, take a step back and ask yourself, “What amount of money can I comfortably afford to spend on life insurance?” The key word here is “comfortably.” Buying more life insurance than you can comfortably afford doesn’t help anyone, as the policy will soon cancel from nonpayment.
Learn about one of the most important parts of a life insurance contract affecting claims.
Every consumer I talk to doesn’t know what a contestability period is, which is understandable since people don’t ordinarily spend their time reading insurance contracts. The contestability period is arguably one of the most important clauses of a life insurance contract. It says that a death claim can be contested (investigated) for the first two years of a policy. Best case scenario: a death in the first two years of a policy will slow down a benefit payment for a few weeks as the claim is investigated. Worst case scenario: the claim is denied because the insured answered the underwriting questions incorrectly. If a claim is denied, all premium payments are refunded, along with a small percentage of interest, but no death benefit is paid.
If you ever decide to switch life insurance companies, the company being replaced will often bring up the contestability period as a scare tactic. While it is true that a new policy means a new contestability period, there is little to worry about if you are being honest on the application. You can contact us to learn more.
Purchasing the right amount of coverage has always been a source of anxiety for potential buyers of life insurance. Not buying enough coverage isn’t the end of the world. You can buy a separate policy to make up the deficit. The new policy will be subject to underwriting, so if your health deteriorated since the last policy, you might have to pay more. The new policy will be rated on your current age, so if you’ve had a birthday since your last policy, the rates are likely to be higher because of it. Also, almost every policy has an annual policy fee built into the monthly premium. If you have multiple policies, you will likely pay multiple policy fees. Policy fees for small whole life policies will run about $40 for the year.
Consumers try really hard to only buy what they need. Its good to only buy what you need for groceries because excess groceries go to waste. Life insurance, on the other hand, never goes to waste no matter how much is purchased. Even if a life policy is only meant to cover funeral expenses, any amount of coverage above that cost can be used by the beneficiary for other needs. Technically, the beneficiary doesn’t have to spend the insurance proceeds on a funeral; the money can be spent on anything the beneficiary desires. Its also good to error on the side of getting more than enough coverage because of inflation. People ask me all the time how much coverage they need for a cremation. I’m careful to only give rough estimates because one funeral home can have very different prices than another funeral home. $5,000 of coverage should cover a cremation and ceremony. Or you can get half the coverage if no ceremony is needed. Use this quoting tool to see what different amounts of coverage cost.