February 1, 2013


shredded insurance policy
Peter Drucker once said, “Doing the right thing is more important than doing the thing right.”

There’s also value in doing the right thing the right way at the right time. You can cancel your insurance anytime you want. That power comes with risks.

The Best Time

The best time to cancel insurance is before you buy. This is the phase where an advisor makes proposals. You don't have much obligation, especially if you didn't ask for the work to be done.

If you have no intention of buying, perhaps you’re wasting your time or the advisors? If start the process, you may make an unintended purchase. In a chain, one link leads to the next and eventually to your wallet.

The Slippery Slope

You may not qualify for insurance, which means you can’t buy any of the nifty proposals. That’s true. Since the approval process takes weeks or months, your advisor may encourage you to submit a trial application without delay. The proposals can be prepared and changed while awaiting the decision.

Since there’s no cost or obligation to you, why not get “pre-approved”? In reality, you’re likely submitting a normal insurance application.

Once you’re approved, you’re congratulated and a big step closer to buying. You don't want to lose something once you've already got it, especially after the underwriting process. Maybe you had to undergo a paramedical exam. All that for nothing?
If you’re approved, you need not take delivery of the insurance contract by paying the first premium and confirming that your health hasn’t changed.

If you cancel now, hundreds or thousands of dollars have been wasted by the insurer for the underwriting. These “returns” increase the cost, which get passed on  to other buyers via higher premiums or lower benefits.

If you have no real intention of buying there's not much point going through the underwriting process.
Money-back Guarantee
You can also cancel after taking delivery during the money-back guarantee period (you’re exercising your right of rescission). You typically have 10 days. This gives you time to read the policy contract in detail to make sure that you're getting what you thought.

An insurance contract is a complex legal document that’s not easy to understand. Would  you really read it? If you want to look at the contract, can get a specimen in advance. There's no harm in looking at one and asking your advisor to explain the pertinent elements.

The Worst Time

The worst time to cancel is after you've purchased and had the insurance for a while. Why are you cancelling now?

Is the reason affordability? Perhaps you were sold the wrong product in the first place or the wrong amount of the right product. Maybe you can make adjustments.

Maybe you think you no longer need the insurance. Do you feel that way because you don't think you'll have a claim? If you could predict accurately, no insurer would sell to you since the odds would be against them.

Are you canceling because you've been shown something newer and shinier? It's important to do a proper comparison. You may be giving up more than you think. With a new policy, you face new conditions, new underwriting and possibly worse guarantees.

If you cancel, you’re giving up an asset of increasing value: you're more likely to face the claim as you get older. There maybe other things you can do with your policy. Perhaps you look at it as an investment now --- especially if you are able to keep the coverage for life.

Cancelling insurance is easy. Replacing coverage may not even be possible.


Podcast 205

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PS Make sure your insurance doesn’t get cancelled unintentionally because you missed premium payments.


Brian So said...

Worst time to cancel? Right before you die.
Seriously though, if you're cancelling because you are replacing the old policy with a new one, make sure your new one is in force before cancelling the old one.

Promod Sharma said...

Great points Brian :)