A life insurance contract is often concluded for many years, and circumstances may change over that time. So it is important to understand in advance what rights a policyholder has if they decide to give up the policy.
What the cooling-off period is
The cooling-off period is a short period right after the contract is concluded during which the policyholder can change their mind and cancel the insurance with a full or substantial refund of the premium paid. The idea is to give the person time to reread the contract calmly at home and make sure the product really suits them.
Whether such a period exists, how long it lasts and the refund conditions depend on legal requirements and the particular insurer’s insurance rules. So before signing, check whether your contract provides for a cooling-off period, how long it lasts and how to submit a request.
Termination after the cooling-off period
The policyholder is entitled to terminate the contract later as well, but the financial consequences will be different.
- Term insurance. As a rule, little or nothing is returned on termination: the premiums paid for protection during the past period.
- Savings insurance. The policyholder receives the surrender value. In the first years of the contract it is usually noticeably less than the premiums paid, because part of the money went on protection and on the costs of concluding the contract. It is worth studying the table of surrender values by year before signing.
- Pension annuity. Once payments have started, termination is usually not provided for.
Alternatives to termination
If paying premiums has become difficult, do not rush to terminate the contract. Many programmes offer other options:
- convert the contract to “paid-up” — stop the premiums and reduce the sum insured;
- change the payment frequency, for example from annual to monthly;
- use the grace period to pay the next premium;
- reduce the sum insured and, accordingly, the premium.
How to terminate a contract properly
Once you have decided, submit a written request to the insurer in the way the contract provides and keep confirmation that it was received. Clarify the refund amount and when it will be paid. If you need a new policy, do not stop paying premiums on the old contract until the new one is in place: otherwise you may end up with a period without cover.
Other important policyholder rights
- To receive full information about the insurance terms, including exclusions and surrender values.
- To appoint and change beneficiaries, if the contract allows it.
- To receive information on the status of the contract and the savings.
- To file a complaint with the insurer and, if you disagree with the response, to turn to the insurance ombudsman, the regulator or the court.
This material is general reference information. Specific rights and deadlines are determined by current legislation and the terms of your contract.
A Dynasty consultant will help you understand the contract terms before you sign and suggest what options you have if your circumstances change.