Cancelling life insurance: what you lose

People cancel life insurance for three reasons: the premium has become unaffordable, the need has genuinely gone, or they no longer believe the policy is worth what it costs. Only one of those is usually a good reason to cancel outright, and it is the middle one.

The first — affordability — almost always has a better answer than cancellation. Insurers would rather keep a smaller policy than lose one, and there are several levers that reduce the premium without ending the cover. The third is worth testing against the actual wording rather than a general feeling, because policies do more than people remember.

The blunt point about timing: cancellation is usually a one-way door. Cover you drop at 55 has to be re-bought at 58, at your age and your health then, with anything diagnosed in the meantime on the table. For many people that is either expensive or impossible.

1. 1Reduce the sum insured. If the mortgage is half what it was, the cover probably should be too. Reducing never requires new medical evidence.
2. 2Turn off indexation. CPI increases have been quietly raising both your cover and your premium every year. Declining the next one holds the premium where it is.
3. 3Change premium structure. If a stepped premium is becoming unaffordable, ask what a smaller level sum insured would cost — a policy you can hold to 70 beats one you cancel at 58.
4. 4Lengthen an income protection waiting period. Moving from four weeks to thirteen reduces the premium materially and is manageable if you have sick leave.
5. 5Remove riders you no longer need, or trim a trauma benefit while keeping the life cover intact.
6. 6Pay annually instead of monthly, where the insurer discounts it.
7. 7Ask about a premium holiday or a suspension. Some insurers offer short-term relief in genuine hardship. Ask before you miss a payment, not after.

If you are going to cancel anyway

1. 1Check whether you are still inside the cooling-off period. If you are, you can usually cancel and have premiums refunded.
2. 2Read the policy for anything with value — a return of premium feature, or an accrued benefit under a whole of life or investment-linked contract.
3. 3Cancel in writing to the insurer, stating the policy number and the date you want cover to end.
4. 4Get written confirmation of the cancellation and the last day of cover.
5. 5Only then cancel the direct debit. Cancelling the debit first creates a lapse rather than a cancellation.
6. 6If a replacement policy is involved, make sure it is already in force. Never cancel first.

These are the details that decide whether the cover does what you expected. Read them before you compare on price.

• Term cover has no surrender value. Whatever you have paid is gone, and that is the nature of the product.
• Whole of life and older investment-linked policies may have a surrender value, so check before cancelling one.
• Cancelling one policy in a bundle can change the price or terms of the rest.
• If the policy is owned by a trust, a company or a bank, the owner has to cancel it, not you.
• Any exclusion, loading or stand-down you have already served is lost and would have to be re-earned.
• If your health has changed since you took the policy out, replacing it later may not be possible at any price.

Every New Zealand insurer writes life insurance in new zealand to its own wording, and the words are where the money is. Two policies that look identical on price can pay very differently when it matters. Closing that gap is the entire job of an adviser.

• An adviser can restructure existing cover rather than cancelling it — usually the cheapest fix by a distance.
• They can approach your insurer about hardship options, which are not always advertised.
• They will tell you honestly when the need really has ended and cancelling is the right call.
• If you are cancelling to replace, they can sequence it so there is no gap and no lost cover.

There are three ways to buy life cover in New Zealand, and they are not equivalent. You can buy direct from one insurer, which means you see one product range and one underwriting appetite. You can buy through your bank, which usually means a single insurer’s product sold under the bank’s brand, often with narrower definitions. Or you can go through an adviser, who quotes several insurers at once and is required to put your interests first.

The premium you pay is the same either way. Insurers build adviser commission into their pricing whether or not an adviser is involved, so going direct does not get you a discount — it just removes the person whose job is to argue your corner at application and at claim time.

• An adviser can see which insurer is currently taking your health history on standard terms, and which one will load or exclude it.
• An adviser can structure cover across two insurers if that produces a better outcome than putting everything with one.
• An adviser handles the underwriting back-and-forth, and is the person who chases the claim when a family is least able to.
• An adviser has to document why the recommendation suits you, which is a written record you can hold them to.

We are a referral service, not an insurer. We do not quote premiums and we do not sell policies. What we do is put you in front of one licensed New Zealand adviser who can compare the market properly.

1. 1

   You tell us what you are looking at

   The form takes about a minute. Nobody asks for your medical history on a web form — that conversation happens with the adviser, properly, and only once you have decided to proceed.

2. 2

   An adviser calls you

   A licensed New Zealand adviser talks through your situation: who depends on you, what you owe, what you already have in place, and what you are actually worried about.

3. 3

   They compare the market

   The adviser quotes across the major insurers, checks which of them will take your health history on the best terms, and puts the options side by side in writing.

4. 4

   You decide, in your own time

   There is no obligation and no cost to you. If the answer is that you already have enough cover, a good adviser will tell you that.