Cancelling term life insurance
Cancelling term life insurance – what you need to bear in mind and what alternatives are available
You are considering cancelling your term life insurance – perhaps because your mortgage has been paid off, your children are financially independent, or you have simply found a cheaper policy. Unlike whole-of-life insurance, term life insurance has no surrender value: any premiums paid to date will be lost upon cancellation. This makes it all the more important to explore all your options before cancelling. As specialist solicitors in insurance law in Augsburg, we can advise you on whether cancellation makes sense in your case – and whether the ‘cancellation option’ will allow you to recover some of your premiums.
Cancelling term life insurance – no surrender value, but options
Term life insurance is a pure death benefit policy: it pays out the agreed sum assured only if the insured person dies during the term of the policy. No savings component is built up; there is no reserve fund and therefore no surrender value. If you cancel the policy in accordance with Section 168 of the German Insurance Contract Act (VVG), all premiums paid will be forfeited. The notice period is generally one month to the end of the current insurance period (Section 11(4) of the Insurance Contract Act). Despite the loss of premiums, cancelling the policy may be the right decision – but only if the insurance cover is no longer actually required.
The cancellation option for term life insurance – when it’s still worth it
In principle, the ‘cancellation option’ also applies to term life insurance policies taken out between 1994 and 2007 under the policy model and which were provided with incorrect cancellation instructions. However, the financial situation differs from that of endowment insurance: as the premiums consist almost entirely of risk costs and administrative costs, the refund amount is lower in the event of a reversal. Nevertheless, a cancellation may still be worthwhile.
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Term Life Insurance Check
Check whether you can cancel your term life insurance policy or whether there are any alternatives to cancelling it.
Alternatives to cancelling your term life insurance
Before you give notice, you should check whether any of the following options are suitable for you. In Augsburg, we can advise you on all the possibilities.
Reduce the sum insured
If your insurance needs have decreased – for example, because part of your mortgage has been repaid – you can reduce the sum insured with most insurers. The premium will then decrease proportionally. This allows you to retain your insurance cover at a reduced level without having to take out a new policy involving another medical assessment. Check your policy terms and conditions or ask your insurer about the options available.
Take advantage of the supplementary insurance guarantee
Some term life insurance policies include a guarantee of additional cover: in the event of certain life events – such as marriage, the birth of a child or the purchase of a property – you can increase the sum insured without having to undergo another medical assessment. Before you cancel your existing policy to take out a new one with a higher sum insured, check whether your current policy offers this option. This saves you from having to undergo a medical assessment and avoids the risk of your application being rejected.
Common issues relating to term life insurance
In addition to cancellation, there are other legal issues that regularly arise in relation to term life insurance. In Augsburg, we can also advise you on these matters.
Pre-contractual duty of disclosure and the insurer’s right of withdrawal
The insurer may rescind the contract if the policyholder provided incorrect or incomplete answers to health-related questions when the contract was concluded (Section 19 of the Insurance Contract Act). Rescission is possible within five years of the contract being concluded. In the event of fraudulent misrepresentation (Section 22 of the Insurance Contract Act, Section 123 of the Civil Code), the insurer may even contest the contract within ten years. In the event of a claim, insurers examine the health information particularly closely. If your insurer has declared withdrawal, have the grounds checked by a solicitor – not every breach of the duty of disclosure justifies complete withdrawal.
Eligibility and termination
With term life insurance, a beneficiary is named who will receive the sum insured in the event of the policyholder’s death. If you cancel the policy, the beneficiary’s entitlement lapses. Note: If an irrevocable right of entitlement has been granted (often in policies taken out to secure a mortgage), the policy cannot be cancelled without the beneficiary’s consent. Before cancelling, check whether a revocable or irrevocable right of entitlement exists.
Frequently Asked Questions
Further information
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This information does not constitute legal advice in individual cases.
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