A person needs to take all necessary precautions in life because it has a way of throwing you curveballs when you least expect it. Even if you live the most tranquil of lives and are a careful person with everything you do, it is nonetheless crucial that you have contingencies in place should the worst happen, and it might. This means having car insurance, despite driving safely, as well as health insurance, because healthcare is more expensive than you think. More importantly, you need to get yourself a life insurance policy if you are the breadwinner of the family, as this is how you ensure they will be financially secured after you’re gone. Before getting the latter, though, you need to learn of reasons that may lead to the cancellation of your life insurance policy so you can avoid them.
The most obvious and common reason why an insurance company might cancel your life insurance policy is nonpayment. You have premiums that you pay every month, and there is a deadline for that. Afterwards, you will get a grace period in which you can still make the payment –– it is usually 30 days. If you do pay within that period, nothing will happen to your policy. If, however, you don’t and the grace period expires, then the company has the right to cancel your life insurance policy. You can still have it reinstated, but you should do it rather fast to avoid having to go through medical exams all over again.
It is actually very common for people to cancel their own life insurance policies, and that could happen for a variety of reasons. This is not a decision to be taken lightly, though, because it might complicate things for you in the future. So, you shouldn’t just bail out because you decided that your life insurance policy is no longer needed and you would be better off saving the money. The older you get, the more expensive this policy gets, and it will probably cost you a lot more if you decide to take a new one. Life insurance, generally speaking, can be used in several ways, aside from the death benefit that the beneficiaries get after you die. It can be used to pay off debt or take a loan, for instance. So, it is definitely worth some serious consideration before you go and voluntarily cancel it.
Suspicion of Fraud
Another reason why life insurance policies might be cancelled is if the insurance company discovered that you lied in your application. Such fraud can have serious consequences. For starters, if the company found out you lied in your application during the contestability period, in which they investigate all claims, they can cancel the policy. Even worse, if you lied in your application and the company found out after you died, they might not pay the claim. So, any fraud or suspicion of fraud can lead to the cancellation of the life insurance policy.
You Lost Your Job
A lot of people get their life insurance policies through their employers. If you are no longer with that employer, the insurance company might cancel your policy. In those cases, if you plan on quitting or something, you should inform the company that you want to transfer your policy from ‘group life insurance plan’ to a privately owned one by you, so you could avoid having them cancel it. In such cases, high premiums are often required, and you will also need to fulfil some considerations by the life insurance company.
Failure to Notify the Company of Material Change
When it comes to the insurance world, a material change of risk is any change in your circumstances that would mean your current policy is no longer applicable or you need a new one. In other terms, the insurance company takes a certain risk by insuring you, and they do it based on certain conditions pertaining to your job and other factors. If any of that changes and you don’t notify them, they can cancel your life insurance policy. If, for instance, you moved from a desk job where there is little risk of mortality to a construction site job where that risk is multiplied, then the insurance company is entitled to cancel the policy.
You need to be diligent about understanding and learning the different ways through which a life insurance policy could be cancelled. If it is not your choice to cancel, then you will want your life insurance policy to be active as long as possible, so you need to understand these situations and actively avoid them.