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You take out an insurance policy to make sure your loved ones are provided for but have to cancel it when you can no longer afford the premium. But what if an unexpected accident happens and you pass away, leaving your loved ones without a life insurance pay-out?
It can happen. It happened to Susan Church, who called her life insurer in August 2018 and cancelled her policy. She also cancelled the debit order due on 1 September at her bank, ensuring that her policy was cancelled from 1 September. She was reportedly going to take out a new life policy with a different insurer, but she died while on holiday in KwaZulu-Natal before a new policy could be finalised. With no life cover in place, her beneficiaries received no pay-out.
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This tragic story reminds us that the unexpected can happen, to anyone, at any time. It also highlights that if you cancel a policy, you have no cover, and your beneficiaries won’t receive any insurance pay-out should something happen to you. What could happen if you cancel your 1Life life cover policy? We find out.
What does it mean when a life insurance policy is cancelled?
If a policy is cancelled, the benefits and cover cease, and no claims are paid after the cancellation date. There is also no refund of premiums. This is because life insurance is what is known as a risk product, which is different to an investment or savings product. In the case of a risk product, you are only covered against the insured risk, and the sum assured is only paid when the risk event happens, for a valid claim. In other words, if you cancel a life insurance policy, you won’t receive any premiums back as a refund, because the risk event has not happened.
There is one exception: When you take out a life policy there is a cooling period of one month (31 days) from the commencement date, in which time you can cancel the policy and get a refund of the premium you have paid. This is to ensure you have enough time to go through your policy and make sure it is what you need and want.
Bottom line: When a policy is cancelled, no claim can be made, and any beneficiaries won’t receive any pay-out. This could leave your loved ones without financial support when they most need it.
How is a life insurance policy cancelled?
Policyholders can cancel policies by asking the insurer to cancel a policy, either in writing (email) or over the phone on a recorded line. They can request a date, such as requesting that a policy be cancelled from 1 October, for instance, or immediately. However, any premium already paid won’t be refunded and you cannot backdate a cancellation.
Policies can also lapse, which is when they are cancelled by the insurer because premiums are not paid. If one premium is not paid, there is a grace period to allow the premium to be paid. If two consecutive premiums are not paid, the benefits are suspended, which means no claims will be paid for an event (death) that occurs in the period when the benefits are suspended. If three consecutive premiums are not paid, the policy will lapse, which means it is cancelled and no claim will be paid either. A lapse is different to a cancellation in that a policyholder can specifically request a policy be cancelled, whereas a lapse is when a policy is cancelled because the premiums are not paid. You can read more on your guide to lapsed policies.
When does life cover end?
From the effective date of cancellation, which will also be the date when premiums are no longer paid for the policy.
For example, if you cancel a policy on 10 October and have paid the premium on 1 October, your policy will end on 31 October, because you have paid the premium for October. If you cancel a policy on 29 October, your November premium will already have been submitted to the bank, so that premium will be paid and the policy will end on 30 November, unless you stop the debit order at the bank, in which case the policy will end on 31 October.
Always make sure you understand exactly when a policy ends if you cancel it – especially if you are replacing it with another policy – so you know exactly when cover ends and when your new cover begins.
Can you reinstate a cancelled life insurance policy?
Yes, in certain circumstances, and if the cancellation was within 12 months.
For example, if you cancelled your policy less than three months ago, you can reinstate it without underwriting, which means you won’t have to answer any medical questions or undergo any medical examinations. If the policy was cancelled less than 12 months ago 1Life will look at each individual case and assess if and how the policy can be reinstated, what cover can be offered at what premium, and whether premiums that were not paid when the policy lapsed need to be paid.
There may also be some underwriting requirements, such as a new HIV test, and waiting periods may apply if the policy is reinstated. You can ask your financial adviser for assistance or speak to one of our skilled consultants if you want to reinstate a policy.
If a policy was cancelled more than 12 months ago, it cannot be reinstated, and a new policy must be taken out.
Think twice before you cancel your life cover
In some cases, policyholders find the premiums too expensive and either let the policy lapse or cancel the policy. This leaves loved ones without cover, which policyholders don’t want. There are alternatives to this that you can discuss with your financial adviser or 1Life. For example, you may choose to reduce cover, which can reduce premiums. This will ensure that your family has some cover should something happen to you.
Always remember, you do have options if your cover feels unaffordable. Find out what you can do when insurance becomes unaffordable, and brush up on some smart ways to save on life insurance.
People also cancel policies because they want to take out another policy with another insurer. This is usually because they believe they can get more or cheaper cover and/or more benefits. This may or may not be the case, so before you cancel and replace a life cover policy, you should carefully:
- Compare the benefits to make sure they are appropriate for you.
- Check the premiums and how they may increase in the future, as a cheaper policy today is not always a cheaper policy in the years ahead.
- Make sure you and your family are always covered – you don’t want one policy to end before a new policy begins.
Cover for your loved ones
Life insurance brings peace of mind. The life assured knows they have provided for their family, and if they do pass away unexpectedly, the family has financial security. Life insurance can also be used to build a family’s generational wealth, so it is always a good idea to examine all the alternatives before cancelling a policy to make sure your family members always have the protection they need.
We answer your questions about our products and services!
Why do people cancel life cover?
The most common reason life insurance is cancelled is affordability or if consumers feel that what they have been sold does not cover their needs. Insurance companies can also cancel a policy if they suspect fraud or if there has been a case of mis-selling by an advisor or skilled consultant.
Do I get my money back if I cancel my life cover?
You do not get money back if you cancel your life cover as life cover is a risk product, meaning that it covers you for the risk of your death. So, your premiums cover the risk that the insurance company has agreed to pay out in the event of your death, during the course of your policy.
Can I withdraw from my life insurance in South Africa?
No you cannot, as life insurance is not an investment or savings product but rather a risk product. An investment or savings product is when you invest/save your premiums in shares or a tax-free savings account and you can choose to stop or withdraw. A risk product on the other hand is when you pay a premium to cover you for a specific risk, in the case of life insurance your death.