Thinking of cancelling your insurance cover? Read this first.

If you’re planning to cancel your insurance cover, there’s a lot to consider before you make a potentially irreversible mistake.

Life insurance, including cover such as Total and Permanent Disability (TPD), Trauma/Critical Illness, and Income Protection (IP), is very different to most other insurances. You can’t simply switch it off and on and expect the same deal later. Life insurance terms are set with your health and circumstances at the time you were underwritten.

As a result, once your policy is cancelled, you may never get it back on the same terms. If your health has changed (even if only for “little” things like a troublesome knee, higher cholesterol that’s now under control, or new family history) you may only be able to get cover with exclusions, loadings, or tighter definitions.

Even if you’re in great shape, older policies are often easier to claim on and harder to replace. So, before you pull the trigger, read on and pressure‑test the decision.

A quick refresher on what your cover does for you

These are all sub‑types of “life insurance,” where the insured asset is you.

• Life cover (Death/Terminal Illness): A lump sum to your beneficiaries if you die (or meet terminal illness criteria). Often used to clear debt, look after dependants, and keep choices on the table for your family.
• Total & Permanent Disablement (TPD): A lump sum if you’re permanently unable to work (as defined by your policy).
• Trauma/Critical Illness: A lump sum on diagnosis of specified major conditions (e.g., certain cancers, heart attack, stroke).
• Income Protection (IP): A monthly benefit if illness or injury stops you working, after a waiting period and for a defined benefit period. Longer waiting = cheaper; longer benefit period = dearer but safer for long recoveries. IP has seen the biggest design changes in recent years.

Why your insurer may be quietly delighted if you cancel

One very different way to think of insurance can be as reverse gambling.

Rather than betting for something you want to happen, you’re betting on something you don’t want to happen.

You bet that you’ll have something bad happen to you, but if you win it means nothing bad happened.

Over time the “house” (the insurer) expects to win, but individuals can and do come out ahead, especially when health changes or policy terms favour you.

With life insurance, you pay each year for terms that were agreed years ago. You can cancel; your insurer generally can’t. That means they might be stuck with a policy on your life they’d rather not hold, because the odds have shifted in your favour. In those situations, the insurer would love for you to cancel.

So before giving them that win, let’s examine when you really shouldn’t.

We’re all only getting older

If your health has deteriorated since you took out the policy (and, realistically, something probably has), your likelihood of a valid claim is higher than it was on day one. Cancelling could mean tossing a genuinely valuable contract.

Even if you’re not at claim stage, things like increased weight, blood pressure, cholesterol, “top‑end‑of‑normal” bloods, or new family history can make keeping your existing cover a smart bet.

Your policy may be on better terms than your insurer would like

Older policies can be more valuable and often irreplaceable, even if you’re in perfect health:

• Older definitions are often better definitions – Over time, insurers tighten wording where grey areas created unexpected payouts. Your older policy may include definitions or ancillary features that simply aren’t available to new policy holders.
• Time is your friend. One of the common claim disputes is whether a condition pre‑existed at application. The longer you’ve held your policy, the harder that argument becomes. As a rule of thumb, a cancer claim on a policy held for 12 months will attract more scrutiny than one held for 3+ years.

Related nuance: Australian law generally makes it harder for an insurer to avoid a life policy for innocent non‑disclosure after three years from commencement or reinstatement (fraud or wilful non-disclosure is different). That doesn’t make a policy “uncancellable”—you can still cancel it, and it can still lapse for non‑payment—but it does add stability to older cover.

• Level premiums (if you have them). True “level” options are rare these days. If you’ve paid more early to pay less later, think twice before giving that away.
• Legacy Income Protection features. Pre‑2020 income protection policies often included agreed value benefits or long benefit periods (e.g., “to age 65”) under more generous settings. These features were removed from new policies under APRA’s sustainability reforms, which were literally introduced because the terms were unsustainably more generous than the industry could afford. You can’t buy that back today.

 When the odds against the house are actually good

Insurance can be more than “protection and peace of mind”—it can also be a rationally good deal when:

• your health is worse than at application; and/or
• your policy terms are older and more generous than today’s market (e.g., legacy IP, level premiums).

Even if you feel you “don’t need it,” the value of the contract might argue for keeping it.

Start here: Three quick checks before you cancel

1. Could you claim on the policy you’re about to cancel?
Plenty of Trauma/Critical Illness claims are triggered by diagnoses that didn’t feel dramatic at the time (certain cancers, cardiac events, specific lymph node findings). Before you bin the policy, review your recent medical history against your definitions and qualifying periods.

Financial Horizons live case study:
A client considering cancellation had a lymph node removed months earlier. On review, that procedure met a partial Trauma benefit. Instead of “saving” premiums, they received a legitimate payout worth far more.

2. Get a health check, stat.
There are the problems you know—and the ones you don’t. A full GP check‑up before cancelling can surface conditions that either qualify now, or would make make keeping your existing policy an even smarter choice than it would’ve been under normal conditions.

Financial Horizons live case study:
One client cancelled and shortly after was diagnosed with terminal cancer. Whilst the older policy terms on timing still admitted a claim, this involved a good deal of luck and wouldn’t happen on a policy taken out more recently. A pre‑cancellation health check is a far safer path.

3. Consider options to reduce costs without cancelling.
If affordability is the driver, you’ve got levers that don’t nuke the policy (see next section).

Ways to cut premiums without killing cover

If you need to reduce your premiums, there may be some options

A) Rating upgrades: when your risk has improved since application

If your personal risk factors have changed for the better, ask the insurer whether your policy can be re‑rated without rewriting it from scratch. Examples:

• Occupation changes: Moved from manual duties or work in the field, to more management and less on‑the‑tools or out in the field? Some insurers price lower‑risk occupations more keenly.
• Higher qualifications: Certain credentials (e.g., professional registrations, degrees) can move you into a preferred occupation class.
• Quit smoking (or vaping) long enough to qualify as a non‑smoker: Many insurers require 12 months nicotine‑free (check the PDS). Re‑classification can materially reduce premiums.
• Hazard/lifestyle changes: If you no longer engage in past hobbies that attracted loadings (e.g., certain motorsports, flying, diving), ask whether those loadings can be removed.

Why this matters: Re‑rating can lower cost without touching core definitions or resetting qualifying periods.

B) Structural tweaks that usually move the needle (especially on Income Protection)

• Increase the IP waiting period (e.g., 30→60/90 days) if sick leave/emergency savings can bridge the gap.
• Shorten the IP benefit period (e.g., “to age 65” → “5 years”) if you have other backstops.
• Right‑size sums insured across Life/TPD/Trauma if debts or family costs have fallen.
• Turn off or reduce indexation (temporarily or permanently) to slow premium creep as needs decline.
• Trim riders you don’t value or no longer need.
• Funding choice: Where allowed, paying some premiums via super can help cash flow (note the trade‑offs on definitions/beneficiaries and potential tax outcomes).

Whilst these are useful things to consider, it’s likely best you speak with an adviser before pressing some of these buttons. If you’re a client of Financial Horizons, let us know and we can look at these.

Consider suspension/relief before cancelling

If you don’t need cover, don’t want cover, and no amount of reductions will make the difference, there’s one final smart move you can make.

If you’re in a rough patch, many policies offer relief options. Used well, these keep the door open without dropping you into no‑cover land.

Premium/Cover Suspension (“pause”)

• • What it does: You stop paying, and cover is off during the suspension.
  • Pros: Complete and immediate cash‑flow relief, and you will have access to cover again without being freshly underwritten.
  • Cons: You are uninsured while paused; some policies apply fresh qualifying periods on reinstatement (common on Trauma). Check whether pre‑existing conditions during the pause are later excluded.

Premium Freeze

• • What it does: You cap the premium at about today’s level; the sum insured reduces instead of the premium rising.
  • Pros: Keeps you insured, often the better default for medium‑term affordability.
  • Cons: Cover shrinks over time; you’ll need to proactively turn indexation back on or adjust the sum insured later if your needs rise.

How to think about relief (practical rules of thumb):

• If your situation is temporary and you still want protection, a freeze usually beats a full pause.
• If you can’t do that, at least pause and keep the door open. Before the time on your pause runs out, give some deep consideration to whether it would be a good idea to let it unpause.

Wrapping up

Cancelling can feel like tidy housekeeping. Sometimes it is. More often, it’s throwing away a contract that’s quietly shifted in your favour.

Before you cancel:

• Check whether you could claim based on your current history.
• Get a health check from your GP to see if you could claim or are likely to claim based on your current health.
• Use rating upgrades and structural tweaks to reduce cost where you can.
• If needed, use relief (freeze or suspend) as a last resort, preferable to a full cancel.