Why You Should Think Before Cancelling Your Life Insurance

Life Insurance is designed to provide your family with financial aid in the event of your death, including paying off outstanding debts whilst helping them to maintain their standard of living.

Yet despite the value of such protection, there are times when you may need to review or cancel your Life Insurance policy.

Sometimes, the biggest factor driving the cost of cancelling Life Insurance is the expense. Although Life Insurance typically costs just a few pounds a month, we understand that sometimes even such a small outlay can be too high if you’re strapped for cash.

The reality is, however, that saving money by cancelling your policy today could mean financial loss in the future.

This could either be because you sadly pass away without cover or you find that getting covered again in the future is more expensive because of your increased age and any medical conditions you may have suffered in the interim.

Common Reasons For Cancelling Life Insurance

“It’s Too Expensive”

Cost is one of the most influential deciding factors that leads to people to cancelling Life Insurance. While Life Insurance isn’t typically expensive, some people may think that it is an unnecessary outgoing. That’s why many people with money troubles consider having their policy cancelled to cut costs.

Before you cancel your policy, it may be a good idea to think carefully about what your premiums buy you and whether the cost is worth the reward.

Can Your Family Afford To Not Have Life Insurance?

Cancelling Life Insurance could mean that you leave your family without any financial support if you were to pass away. If you are not immediately struggling to keep on top of your premiums, it may be worthwhile to keep up with your Life Insurance policy. That way, your family will always have some money to fall back on should you pass away.

If you feel that your premiums are too costly for comfort, there are other ways of saving money aside from cancelling your cover.

Cut Costs or Cancel Your Policy?

There are some changes that you can make to your policy in order to reduce the cost of Life Insurance. This includes decreasing your policy’s payout if it’s more than you currently need (i.e. more than your current outstanding liabilities, such as a mortgage).

If you would prefer to find a cheaper policy with a different insurance provider, you should consider speaking to an insurance adviser with access to the whole market.

This is especially the case if you’ve had the insurance policy for a while and are older than you were when you took it out, or if you’ve suffered any medical conditions since taking out the policy.

Age and medical history will be major factors in deciding the price of a new policy, so it may be that moving to another provider doesn’t save you money at all when all’s said and done.

“I’m Worried About Tax”

It’s more than reasonable to worry about tax biting a chunk out of your insurance payout and leaving your loved ones with a reduced payout. However, does the threat of taxation warrant cancelling Life Insurance policies entirely?

Inheritance Tax

Inheritance tax is something that everyone should think about if they plan on leaving anything to their children. Inheritance tax in the UK is charged at 40% on all of your assets worth in excess of £325,000 for a single person. This can include your Life Insurance payout if you leave it to your children.

An insurance payout that becomes part of your estate in this way will need to go through probate before it can be given to the intended people, which can take considerable time to clear. If the taxation of your Life Insurance payout concerns you, you can avoid having your insurance taxed and put through probate by writing your Life Insurance in trust.

If you choose to write your policy into trust, when you pass away your insurer will pay out into your trust rather than paying out directly to your estate. This ensures that your insurance payout stays outside of your estate for inheritance tax purposes. By doing this you can avoid inheritance tax and ensure that your insurance policy’s payout reaches your loved ones a lot faster.

Relevant Life Insurance

If you own your own limited company, Relevant Life Insurance is a tax-efficient option for Life Cover. As this policy is effectively owned and paid for by the business, premiums are treated as a tax-deductible business expense. The payout is paid into a trust the company owns; the trust then distributes this to your loved ones. This avoids inheritance tax.

It’s typically possible to cover yourself and other employees for as much as 15 to 20 times their annual salary. In some cases where salary is minimal and the bulk of income is derived from dividends you can insure yourself for an arbitrary figure.

“Insurers Never Pay Out”

Many people are understandably worried that their insurance claim might be declined. This is especially true when it comes to Life Insurance, as we won’t be around to fight our case and it will be left to our families to do so.

In our 2025 Individual Protection Survey, we asked 1,000 people to guess what percentage of claims the top UK insurers pay. The majority guessed that insurers pay out less than half the time for Life Insurance claims. However, the reality of Life Insurance Claims Payout Rates are very different, with real world payout rates of between 80-95%.

The main reason for claims being declined is a lack of disclosure at the application stage. A Life Insurance application will involve an extensive medical questionnaire that we’ll help you fill in. It’s vital you disclose anything that might impact the policy. If you don’t, there’s a risk the insurance may not pay out when you need it the most.

“My Circumstances Have Changed – I Don’t Need It”

It’s very likely that your situation has changed somewhat since you first took out your insurance policy. In some instances, these changes are so drastic that your policy might no longer be relevant to your lifestyle.

In such situations, you might need to change or even cancel Life Insurance policies to ensure they keep up with your new circumstances.

Getting Divorced

If you purchased a Joint Life Insurance policy with your spouse, getting divorced can bring on some complex issues.

If you are no longer married to the person you own a joint life policy with, the payout will be subject to inheritance tax. It can also become an issue that a joint policy will only pay out once upon the first death. Furthermore, you may no longer own the marital home with a mortgage to protect.

For these reasons and more, it would usually be better to have two single policies instead of a joint policy that is shared with an ex-partner. However, it isn’t always necessary to cancel your joint policy and purchase two new single policies. Some insurers will allow you to split a joint life policy into two single policies under certain conditions. If you need help splitting a joint policy or finding a new single Life Insurance policy, speak to our insurance specialists on 02084327333 for fee-free advice.

Moving Home

If you upsize to a larger home and take out a bigger mortgage, your existing Life Insurance policy may no longer cover your outstanding balance. However, cancelling Life Insurance policies is not always necessary when you take out a new mortgage. Most insurers will allow you to increase your cover or extend the term on your Mortgage Life Insurance if you move home and take on a larger mortgage, although this usually affects the cost of your policy.

Moving Abroad

Moving abroad will complicate any insurance policy that you took out in the UK and most insurers have different terms when it comes to keeping you insured while you’re in another country.

Some insurers will allow you to keep your insurance policy if you still own a UK property and have a UK bank account. Other insurers will keep you insured for a certain length of time while you are abroad and if you exceed this or move abroad permanently, your insurer will terminate your policy.

“I’ve Paid Off My Mortgage”

If you have paid off your mortgage, it may feel somewhat pointless to keep paying for Life Insurance. However, if you’ve chosen Level Life Insurance and your term extends beyond that of your mortgage, it may make sense to keep up the payments so you can have a lump sum to leave beneficiaries.

Decreasing Term Mortgage Insurance falls alongside your mortgage, reaching zero along with your mortgage at the end of the policy’s term. Here the policy ends automatically without you having to cancel it.

“I Don’t Have Any Beneficiaries”

Perhaps your children have grown up and become financially independent, or maybe you don’t have any children and your partner passed away. If you don’t have any people to which you want to leave some money, then it may not be necessary to keep Life Insurance in place.

There are some reasons why you may consider keeping your policy, however. Even if you don’t have anyone to leave the payout to, there are other ways in which you can use your Life Insurance policy.

Most Life Insurance policies automatically come with Terminal Illness Benefit, which allows you to claim your insurance payout early if you have a terminal illness. This benefit can be useful to provide financial support if you become terminally ill, perhaps paying for end of life care etc.

Critical Illness Cover or Income Protection are more comprehensive forms of sickness insurance, and you should never rely on a Life Insurance terminal illness benefit to provide you with sick pay cover as it’s a very narrow benefit. However, it could still come in useful if you are diagnosed as terminally ill.

Even if you don’t have beneficiaries, there are still ways in which your insurance payout can be used. Many people use it to cover their funeral costs while others might give it as a donation to a charity of their choosing.

Samantha Haffenden-Angear
Independent Protection Specialist

“I Have Life Insurance Through Work”

A Group Life Insurance scheme is a great employee benefit to have, especially because it’s employers that pay for your cover. However, it may not be the best idea to cancel your existing Life Insurance policy simply because you’ve got group cover.

One issue that you may come across with a Group Life policy is that the payout usually covers a maximum of 3 to 4 times your yearly salary.

If this is the only Life Cover you have, it may not be enough to meet liabilities such as a mortgage while also leaving cash for beneficiaries to maintain their lifestyle.

Another issue with a Group Life policy is that you are only covered while you are an employee of the company who owns the policy.

If you do not have a Life Insurance policy aside from the group policy, you won’t have any life cover if you leave the company, at which point getting personal cover could become very expensive due to your advanced age. Having a Group Life Insurance policy may mean, however, that you can reduce the level of cover from your individual policy so that the two added together come up with the total amount of protection you require.

“I Found a Better Policy Online”

Switching to a brand new policy comes with its risks and you don’t always know what you’re in for when you come across a promising policy. Instead of rushing to cancel your current policy and switch to a new one, you should think carefully and compare what you have to what you want.

You should always approach Life Insurance quotes from comparison sites with caution. They may not always be accurate, especially if you didn’t have to submit any personal information in order to get the quote. Before you rush into cancelling your policy and purchasing a new one, you may want to speak to a financial adviser.

They will be able to confirm whether or not the quote you found was accurate and get you a personal quote directly from the insurerto ensure like-for-like cover is maintained.

They will also be able to tell you more about the insurer your want to switch to: whether they’re reliable, their claims payout rate, and the quality of their insurance policies. With a financial adviser’s specialist insight, you don’t have to worry about getting duped by misleading quotes online.