Cancelling Life Insurance? Read This First.

The most common reason people consider cancelling life insurance is cost. Stepped premium policies increase each year as you age, and a premium that was easily manageable at 35 can feel burdensome at 50. Other reasons include a change in personal circumstances — children have grown up, the mortgage has been paid off, income has dropped — or simply a feeling that cover is no longer needed. These are understandable. But cancellation has consequences that are worth understanding before you act.

What You Give Up When You Cancel

Your existing health status is locked into your current policy. When you originally took out your life insurance, you were underwritten based on your health at that point in time. The insurer assessed your risks, asked about pre-existing conditions, and issued a policy — possibly with exclusions or loadings, but possibly on standard terms. That underwriting decision is locked into your policy for as long as it remains in force.

If you cancel and later want to take out new cover, you will be underwritten again based on your health at the time of the new application. Any conditions that have developed since your original policy was issued — a cancer diagnosis, a heart condition, a mental health history, diabetes, significant weight gain, a spinal issue — will be disclosed to the new insurer and may result in exclusions, premium loadings, or an outright decline. The health that made you insurable at 35 may not be the health you present with at 50 or 55.

Reinstatement is not guaranteed. Some policies include a reinstatement provision that allows you to reactivate cover within a certain period after lapsing. But reinstatement is not a right — it typically requires a new health declaration and may be subject to fresh underwriting. If your health has changed, reinstatement may not be available on the same terms, or at all.

Your dependants lose protection immediately. If you cancel your policy, the cover stops on the cancellation date. There is no grace period during which you remain covered while looking for alternatives. If you have outstanding debts and financial dependants, the protection disappears from the moment you cancel.

Your current policy may represent better terms than you could obtain today. Even if your health has been stable, the older you get the harder and more expensive it becomes to obtain new cover. A policy issued when you were healthy at 35 may contain terms — premium rates, definitions, included benefits — that would not be available to you if you applied today.

Alternatives to Cancelling

Before cancelling, consider whether these alternatives might address your underlying concern:

• Reduce the sum insured. A lower benefit amount means a lower premium. Your debts may have reduced since you took out the policy, meaning you may not need the same level of cover — and reducing the benefit rather than cancelling the policy keeps your insurability intact.
• Switch from stepped to level premiums. If your policy uses stepped premiums — increasing each year — switching to level premiums may reduce your long-term cost if you plan to hold the policy for many more years. This is worth modelling for your specific situation.
• Move cover inside superannuation. Paying premiums from your super balance rather than after-tax income can make cover significantly more affordable on a cash flow basis.
• Adjust other cover types. Reducing income protection waiting periods, shortening benefit periods, or adjusting trauma cover amounts may free up budget to keep life insurance in place.
• Request a premium pause. Some insurers offer a temporary suspension of premiums for clients experiencing financial hardship. This keeps the policy in force without requiring you to keep paying while your situation is difficult.

When Cancelling May Be Appropriate

There are circumstances where cancelling life insurance does make sense. If you have no financial dependants, your debts are fully paid off, and your assets are sufficient to provide for yourself in any circumstance, the case for life insurance weakens significantly. GCFA will tell you honestly if cancellation is appropriate for your situation — we have no interest in maintaining cover for the sake of it.

Frequently Asked Questions