Can I Surrender My Life Insurance by Not Paying Premiums?
Life insurance protects your family. If you buy a policy, you are ensuring that they have money after you die when they need it most. The money may be used for any purpose, but, as a practical matter, the money will likely be used first to pay for your funeral costs and burial. If you find that you no longer need your policy, however, you might be able to surrender it by not paying the premiums.
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Types
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There are two types of policies that may be canceled by non-payment of premiums. Term life insurance provides basic death benefit protection. The policy guarantees the death benefit and sometimes provides guaranteed level premium payments for the length of the term. A permanent policy guarantees the death benefit in some instances as well as a cash value reserve. The cash reserve functions as a savings that may be used during your lifetime for any purpose.
Benefit
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The benefit of surrendering your policy by stopping premium payments is that it's uncomplicated. There are no forms to fill out, and you won't need to contact the insurance company unless your premiums are automatically drafted from your bank account.
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Warning
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If you have a cash value policy, you might not be able to surrender your policy by stopping premium payments. Some life insurance companies provide an automatic loan feature that will make the premium payment out of the cash value account so that the policy will not lapse. In that case you'll have to contact the insurance company, or the company will continue making premium payments from the cash value of the policy. Once the cash value account is depleted, the policy will lapse, and you'll lose what you put into it. If you, instead, call the insurance company to terminate the policy, the policy can be canceled, no automatic loan feature will be used, and you'll get the cash value remaining in the policy. Regardless of how your cash value policy is terminated, you'll have to pay income tax on all of the money that exceeds the total premiums paid into the policy.
Consideration
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If you really want to cancel your policy, consider contacting the insurance company and requesting a policy termination form. Even though you may cancel your policy by stopping premium payments, you'll still receive notices for up to 30 days after the premium is past due. The insurer may contact you to try to get you to pay the premium payment. By notifying the insurer that you no longer wish to carry the insurance, the company can terminate the policy, and you'll receive no more communication from them.
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