When To Cancel Your Cheap Life Cover

Your life insurance policy - do you need it? It's rare for it to be in your best interest to cancel a policy, but it happens. Maybe you need cash. Maybe you're picking up better coverage. Maybe you just don't need coverage anymore. Sometimes, you've converted your cheap life cover to a permanent policy with higher premiums - but you need income now. Life insurance companies, and agents, will try to entice you to keep your policy in-force. Here's when you can safely cut the cord and ditch your policy:

When You're Transferring Coverage

When you've applied for new insurance coverage, and you don't need your old policy, you can safely cancel your old contract. However, don't do this until you are approved for your new policy. In many instances, it makes sense to perform direct exchange on the old policy. These exchanges allow you to roll from one policy to another without losing any accumulated cash value in your whole life or universal life policy.

For term life, transferring a policy to a new one might allow you to reduce the costs associated with riders and other features. Some term policies, like "ROP term" are inherently expensive because they charge a high premium in exchange for a refund of all premiums at the end of the term.

For term contracts, it's only safe to cancel coverage after you've secured the new policy. Insurers will give you a temporary insurance binder once you submit the application - don't cancel yet. Only cancel when the full coverage has been approved and you've received a permanent insurance binder.

When You No Longer Need Coverage

There are times when you just don't need coverage anymore. For example, when you purchased a 30 year term policy to cover your mortgage, and you've paid off the loan, your need for that policy is probably gone. As long as you never take out another home loan, you wouldn't need the insurance designated for that loan.

Another circumstance where dropping the policy might make sense is when you've purchased an annual renewable term policy and it's getting expensive to renew. Since premiums on annual renewable policies are guaranteed to increase every year, your only practical option might be to drop coverage.

Automobile loan life insurance is also another type of policy that you may not need once the vehicle is paid for. If you've purchased an expensive automobile, a recreational vehicle, or some other expensive vehicle, you probably took out additional life insurance to cover the loan. When that loan is paid off, the insurance becomes an extra unnecessary expense.

While the end of a loan often means that less life insurance is needed, it doesn't always mean you should drop the coverage immediately. You may need coverage in the future. If you expect to keep buying new vehicles at regular intervals, for example, it might make sense to take out a permanent life insurance policy to cover a lifetime of trade-ins. If you're satisfied with your current insurance coverage however, it might be best to just let the policy expire.

When You Need Lifetime Payments

There are times when whole life or universal life becomes a burden. You converted your term policy to a permanent one because an agent convinced you that you needed the cash value. Now, what you need are lifetime payments. When the policy has fulfilled its purpose, and you now need regular income payments to supplement your other retirement income, it might be best to transfer the policy to a new annuity contract.

Annuities are insurance policies that convert a lump sum of savings to regular monthly payments. Some annuities, called deferred annuities, defer that monthly payment until you need it. If you're converting a cheap old whole life or UL policy, use a direct transfer into a new annuity contract. Then, determine how long you'd like to receive payments for.

Most insurance companies are very flexible in regards to payment terms. If you only need payments for the next 10 years, they'll issue something called a "10 year period certain" annuity. If you need lifetime payments, they'll give you a "single lifetime payment" annuity. If you want options to leave your spouse or children payments, you can also have the insurer modify the annuity to provide a death benefit.

Sam Jones the author recommends that readers visit the price comparison website,uSwitch for cheap life cover. They offer great deals aswell as helpful advice, on all aspects of insurance.