Losing faith in life insurance: Misunderstandings driving policy cancellations

A growing number of Americans are walking away from their life insurance due to confusion and mistrust. Recent reports show a spike in policy cancellations across both term and whole life plans as consumers question the value of coverage they don’t fully understand.

Finance and insurance expert Carlton Crabbe from Capital for Life warns that many may regret the decision once they realize the long-term protection and financial security they’ve given up.

Common misconceptions fueling cancellations

1. “Insurers never pay out.”

This belief often comes from stories about denied claims. In reality, most policies pay beneficiaries as intended. Denials usually occur only when premiums lapse, information was omitted during application, or the claim falls within a contestability period.

2. “Life insurance is too expensive.”

Many Americans assume coverage costs hundreds of dollars each month, when in fact a healthy 30-year-old can often secure protection for less than the cost of a streaming subscription. Surveys show people overestimate premiums by as much as three times, causing many to cancel coverage they could afford.

3. “My job’s life insurance is enough.”

Employer-provided life insurance may feel sufficient, but coverage is typically limited to one or two years of salary and ends when you leave your job. This can leave families unprotected during job transitions or retirement.

4. “I can get life insurance later.”

Younger adults often delay coverage until they have dependents or a mortgage. Waiting can lead to higher premiums or difficulty qualifying as health risks increase. Buying early helps lock in lower rates and ensures long-term protection.

5. “I can rely on my savings.”

Savings and investments are valuable but rarely provide the immediate financial support that insurance does. A death benefit can cover a mortgage, replace income, or fund education, offering stability that savings alone may not achieve.

6. “Policies are full of fine print and hidden traps.”

Complex policy language can be intimidating, leading some to cancel out of uncertainty. In reality, most modern life insurance contracts are standardized and regulated to protect consumers. Reviewing details with an advisor can make coverage far clearer.

How to better understand your policy

• Review your policy terms carefully: Go through what your policy actually covers, including when payouts apply and what’s not included. A short conversation with your provider can often clarify details about benefits or terms that may seem unclear.
• Reassess your current needs: Life changes—such as income, family, or debt—all affect how much coverage you need. Regular reviews ensure your policy still matches your goals and financial obligations.
• Seek professional guidance: A licensed financial advisor or independent insurance expert can help interpret policy details, compare options, and determine whether adjustments make more sense than cancellation.

“Many people cancel their life insurance because they believe it’s either too costly or not worth the investment, but in most cases, those decisions are based on misunderstandings rather than facts. Life insurance can be complex, and when people don’t fully understand how their policy works, they’re more likely to walk away from valuable protection.

There’s also a growing perception gap between what people think life insurance provides and what it actually delivers. Some assume insurers avoid paying out or that policies are full of loopholes, when in reality, the industry is tightly regulated and most claims are paid without dispute. Often, it’s not a lack of interest but a lack of clear guidance on how life insurance connects to long-term financial security.

Making an informed decision starts with understanding your options. Reviewing coverage regularly, asking questions, and seeking guidance from a trusted advisor can make all the difference. "The goal isn’t just to hold onto a policy, but to make sure it truly supports your long-term financial security,” Crabbe said.