Have you decided that you no longer need disability insurance (perhaps you’ve retired), or you never wanted it in the first place? Maybe you’ve done a budget analysis and decided disability insurance is now something that has to go? Or a loved one with a disability policy has passed away?
Jump ahead to these sections:
- What You’ll Need Before You Cancel Your Disability Insurance Policy
- How to Cancel Your Own Disability Insurance Policy
- What You’ll Need Before You Cancel a Deceased Loved One’s Disability Insurance Policy
- Why You Might Want to Cancel Your Disability Insurance Policy
- Canceling a Disability Insurance Policy: FAQs
Whatever the reason is, sometimes there comes a time when you need to take action to cancel a disability insurance policy, either for yourself or for a deceased loved one.
In this article, we’ll look at how you cancel a disability insurance policy, step-by-step, and answer some of the most frequently asked questions about canceling a policy.
What You’ll Need Before You Cancel Your Disability Insurance Policy
Canceling your disability insurance policy doesn’t require a mountain of paperwork on your part. In fact, you only need one document: a cancellation form supplied to you by the insurance company or its agent.
On that form, you’ll need to submit your personal information (name, address, phone number, etc.), the policy number, and the date you’d like the policy to terminate. Based on that information, the insurance company will be able to accommodate your request.
If you’re paying monthly via automatic withdrawals from your bank account, it’s not a bad idea to contact your bank and withdraw your approval for debits by the insurance company.
How to Cancel Your Own Disability Insurance Policy
If you decide you no longer want to have a disability insurance policy, just follow this simple three-step process:
- Step 1: Get a cancellation form from the insurance company.
- Step 2: Complete the form. Be sure to include the policy number and the date you want coverage to terminate.
- Step 3: Submit the form to the insurance company, either online or send it via the postal service.
- Step 4 (optional): Contact your banking institution and rescind your authorization for the insurance company to debit your bank account for premium payments.
Another way of canceling your disability insurance is to stop paying your premiums. If you pay your insurance premiums annually and you want to cancel your policy after you’ve already paid your premium, contact the insurance company. You should be able to get a prorated refund.
Once you stop paying your monthly premiums, you’ll have a 31-day grace period in which you can change your mind or file a claim against the policy. If you file a claim during the grace period, you’ll have to pay another month’s premium to put the policy back in force to get your claim paid.
If you have a claim after the 31-day grace period, you won’t be able to file it because your coverage will have officially terminated (and you’ll have forfeited all paid premiums).
If you change your mind – you’ll likely need to apply for a new policy. Call your agent or the insurance company and ask about reinstatement; some companies will accommodate you and reinstate the policy as long as you pay all of the past-due premiums.
What You’ll Need Before You Cancel a Deceased Loved One’s Disability Insurance Policy
The process for canceling a deceased loved one’s disability insurance policy doesn’t differ from canceling your own policy except for one step: send the deceased person’s death certificate in with the cancellation form.
Here’s a fictional example. Ted and Susan Sanders were self-employed owners of a plumbing company. Ted did the plumbing work in the field while Susan was in charge of all of the administrative duties for the company. They both had disability policies with the Excelsior Disability Insurance Company.
Susan passed away unexpectedly, and shortly thereafter, Ted contacted his Excelsior agent and was told to fill out a cancellation form with the policy number provided by the agent and attach a copy of Susan’s death certificate to the form.
Ted did precisely as he was directed and gave the documents to his agent, who then submitted them to Excelsior’s home office. The company immediately canceled the policy upon receipt and issued Ted a refund of unused premiums.
Why You Might Want to Cancel Your Disability Insurance Policy
There are several reasons you might want to cancel your disability insurance policy. The most common are:
- You have a new job that has disability insurance as an employee benefit.
- The premiums have become unaffordable for you.
- You no longer rely on your income for support (financial windfall).
- You are approaching retirement age, and you can replace any lost income due to a disability with money from savings.
Let’s look at each reason in detail.
1. You have a new job that has disability insurance as an employee benefit.
Despite having this as a benefit, you may want to reconsider canceling your insurance if you plan on leaving the job, as you’ll lose your group disability benefit. In addition, the benefit is taxed if your employer pays the premium.
In some cases, employer-provided disability coverage might not take into account commission or bonus income, which can leave you with a gap in your income. It may also be possible that your individual policy is better because it doesn’t have all of the limitations of your group policy.
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2. You can no longer afford the premiums.
If you get sick or injured outside of work, a disability insurance policy will make it possible for you to pay all of your bills. Without it, you won’t be able to afford anything because you’ll have no income. You might be much better off looking at other ways you can make budget cuts.
When your financial situation changes, you’ll have to apply for a new policy, which you may not qualify for if your health has had negative changes. Also, your premium will likely be higher because you’ll be older than you were when you took out your original policy.
3. You no longer rely on your income for support.
You might be excited because you just had a financial windfall, but will the money last all of your working life? If you ever need to work again, you may once again need the protection of a disability insurance policy, and the premiums could be much higher.
4. You are approaching retirement age, and you can replace any lost income due to a disability with money from savings.
Of all the reasons you might want to cancel your disability insurance coverage, this may be the best. Most policies will only pay your benefits until age 65, so if you’re getting close to that age and your savings could offset early retirement because of a disability, it might make sense to cancel. You could invest your remaining premium payments and supplement those with other savings you have.
The big question to ask yourself is the following, “If I cancel my disability insurance policy and something happens to me the next day, could I pay for all of my expenses with money from savings?”
Canceling a Disability Insurance Policy: FAQs
Deciding to cancel a disability insurance policy is a big decision and shouldn’t be taken lightly. These are some of the most frequently asked questions by people concerning canceling disability insurance.
What happens after you cancel a disability insurance policy?
Once you cancel your policy, you no longer can submit a claim unless you’re in your 31-day grace period and will pay any premiums you owe to bring the policy current. It’s similar to life insurance – the life insurance company isn’t going to pay your survivors a death benefit if you had canceled your life insurance policy.
Can the insurance company cancel your disability insurance?
This is something that many people worry about. Most policies are what is called “guaranteed renewable,” meaning that per the policy terms and conditions, the insurance company can’t cancel your policy as long as the premium payment status is current. As long as you were honest on the application, you have nothing to worry about.
However, once you file a claim, there are a few things that can trigger an investigation and result in the canceling of your benefits, including:
- The insurer found out that you weren’t truthful in your application.
- You submitted a false or fraudulent claim.
- Your insurer discovered that you’re continuing to receive benefits even though you’re no longer disabled.
- You failed to apply for Social Security Disability Insurance (SSDI) benefits to offset your private disability benefit (which is specified in almost all policies).
- You became disabled and have failed to receive regular medical treatment.
Reputable insurance companies aren’t known to cancel a person’s policy for no reason. Be sure to be truthful whenever you complete an application for any type of insurance. If you don’t, it could be very costly to you and your family members.
Can you replace your disability insurance policy?
Yes, you can. If you feel you’ve found a policy that suits you better, be sure the new policy has at least the same level of coverage as your current policy. Don’t change coverage just to save a few dollars; you’ll regret it after you file a claim and find out that you won’t be receiving as significant a benefit as you thought you were under your old policy.
There are unscrupulous insurance agents who will persuade you to replace your policy so that they can earn a commission from selling you a new policy.
Also, when you replace your disability insurance policy, you’ll have to fill out a new application and possibly be required to have a medical exam.
Canceling a Disability Insurance Policy
If you decide to keep your disability insurance policy and not cancel it, remember that your policy is limited to paying you benefits for only the period of time specified in the policy. Standard policy benefit periods are two, five, or 10 years, and some policies will pay you benefits until you reach age 65.
You may want to carefully consider all of the ramifications of canceling your disability insurance policy, which is why it exists in the first place. It could prevent a financial catastrophe from happening to you and your family.