Maximize life insurance payout by terminating the policy promptly.
Life Insurance Revocation vs Cancellation: Which is Better for You?
When it comes to life insurance, policyholders often find themselves in a quandary: should they revoke or cancel their policies? Here's some advice to help you make the best decision for your financial future.
Revoking your life insurance policy is a smart move if you're unhappy with the high costs, poor interest rates, or lack of flexibility. Revocation makes the policy ineffective from the beginning, which means you'll get back all your paid contributions, as well as interest and surplus shares from the insurer. Unlike cancellation, revocation doesn't allow the insurer to deduct any acquisition and administration costs from the contract assets.
On the other hand, cancelling your life insurance is a retroactive dissolution of the contract, which means you're treated as if you never had the policy. The payout amount in case of cancellation is usually relatively low, as the insurer first calculates the sum of the premiums and then deducts acquisition and administration costs, as well as a cancellation fee. The insurer may also retain any inherited risk portions, such as for disability or death coverage.
Factors to Consider Before Revoking or Cancelling
To make an informed decision, you should be aware of the following:
- Timing: Revoking a life insurance policy is only possible within one month after receipt of the contract documents. After this period, no further revocation is possible unless the insurer has not effectively informed you about your right of revocation.
- Context: The Federal Court of Justice (BGH) ruled in 2014 that an ineffective revocation notice means that the revocation period neither begins nor ends, particularly for policies concluded between 1994 and 2007 using the so-called policy model.
- Financial Impact: Cancelling your life insurance policy often results in a financial loss, as the insurer deducts full acquisition and administration costs from the contract assets, leaving little for the policyholder.
- Benefits: Revoking your policy within the free look period offers a full refund of all premiums paid, while cancelling later may still allow recovery of some cash value or surrender value, depending on the policy type.
Ultimately, the choice between revoking or cancelling your life insurance policy depends on your individual financial situation and specific policy terms. It's advisable to consult with experienced lawyers to understand your options and maximize your payout. Remember: prompt action during the revocation window will yield the best financial outcome.
In the context of personal-finance and business, revoking your life insurance policy could be a smart move if you're unhappy with the costs, interest rates, or lack of flexibility within the first month after receipt of the contract documents, as it grants a full refund of all paid contributions, unlike cancellation that may result in a financial loss due to deducting acquisition and administration costs. On the other hand, other factors such as timing, context, and financial impact should be considered before making a decision, as cancelling may offer a smaller payout compared to revoking during the free look period.
