Do you feel life insurance policies are designed to waste your money? Wait there before you think of cancelling one because we have blasted all myths here in this two minutes read.
Thinking of cancelling your life insurance policy?
Is it because you feel burdened to pay the life insurance premiums?
Or probably you just want to cut short the cost and save more money!
Whatever may be the reason, you should not just cancel the life insurance policy without reviewing it and doing a little study on it to ensure you get the maximum value out of it.
Ravi, a friend’s friend had purchased a life insurance policy. He has then used this policy as a security against home loan and other debt repayments.
But, he later received some unexpected large sum from inherited property and paid off all his debt beforehand. Though loan is repaid, he yet did not cancel the life insurance policy. He has two school going kids, so he continued with the policy for both life and income protection.
Though the purpose has changed, life insurance still will ensure an extra financial security to Ravi’s family for the uncertain future. In short, if you are raising a family and you have people financially dependent on you, cancelling life insurance policy does not really make any sense.
Before you plan to cancel your life insurance plan, do remember cancellation of term insurance policy will not fetch you any cash value. In case you cancel your term insurance coverage during the policy period, the amount of premium paid by you will not be paid back on cancellation of the policy.
However, there are various types of life insurance products available apart from pure term insurance plans that help you in in building the cash value for future. With the availability of more new investment options, whether to invest in life insurance policies or not still remains as a topic for debate.
Here are few reasons for which you should not cancel your life insurance policy:
1. To take care of your family’s future financial needs
For every breadwinner of the family, spouse, children, aged parents and any other family member would continue to depend on their income and savings even after their demise. Loss of regular income can make the family compromise on various essential and lifestyle needs. Insurance is one such product that is designed to provide protection and bring in financial stability during an unfortunate income.
Be it children education, marriage, retirement needs of spouse or for any other family need, it works as an income replacement option. Cancelling a policy mid-way can deprive your family of all these benefits.
2. Surrender charges can have an adverse impact on your finances
When you think to cut short the expenses, life insurance premium may hit your mind the first. If you think to chop off the premium cost temporarily by cancelling the life insurance plan with a hope to buy a new plan later, that’s definitely a bad idea. You may have to pay hugely for getting the same policy with an equally same coverage in future. If an unexpected illness is diagnosed, you may not be able to get the coverage also.
Surrendering or cancelling the life insurance policies like endowment plans, money back policies, whole life insurance plans and unit linked insurance plans mid-way makes you not only lose out on the cash value growth but also involves various charges like surrender charges and tax. Your surrender value may be very small due to taxes and charges that you incur for cancelling the policy.
3. To save some income tax money
Insurance premiums paid every year qualifies for tax deduction under Section 80C of the income Tax Act, 1961. Cancelling the policy simply means not paying the further life insurance premiums for the policy and not getting life coverage from the insurer.
You will lose out on this benefit by surrendering the policy. Life insurance policies like endowment plans and unit linked insurance plans provide you tax efficient returns in comparison to other investment avenues. Stopping the premium payment mid-way and cancelling the policy may not fetch you good tax efficient return. Even if you are wealthy, life insurance is still needed as a tax saving tool.
4. For the peace of mind
Insurance gives you a worry-free life. Depending on the policy you have chosen, life insurance policy fulfils your long-term financial requirements. It can also help you for your short-term needs as life insurance policy can be used as a collateral for loans. Life insurance policies also provide various options for investment. It also gives various riders like accidental disability, critical illness etc. at an additional premium. Certain life insurance plans such as child insurance plans and endowment plans help you plan for your children’s future in a very systematic and disciplined way.
Whole life insurance plans provide extensive life insurance coverage for the lifelong. Cancelling the policy would make you lose out on all the benefits.
5. New coverage can prove to be more expensive
When you surrender your life insurance policy you will lose out on the coverage you have purchased. In case you need to purchase the same coverage in future, the same can be more expensive as life insurance costs increase with the increasing age. If you still think that life insurance that you have is a burden on you, make use of all the flexibility offered by the life insurance company. Cancellation of the life insurance policy is not the only option. You have few more alternatives. Take a look!
6. Change premium payment mode
If the premium is heavy to pay on a yearly basis, you can talk to your insurance company and convert the premium payment mode to monthly or quarterly. Doing this can help you get through a tough time.
7. Drop off the riders
In case your policy has some riders or add-ons (for which you are paying extra money) that are not really needed for you, you can reduce your premium by dropping off these benefits attached to your plan. Always remember that riders should be opted only as per your requirement. Do not buy one simply because your friend, or your friend’s friend opted.
Investing in life insurance is a wise decision. But, keeping the policy in force without allowing it to lapse or cancel is even a wiser decision. Life insurance is a product to keep for lifetime. Life insurance policy is an absolute necessity in today’s uncertain world. Securing your family’s future financially and preparing for their stable financial future can be done by only the right and adequate insurance plan. Cancellation of life insurance plan will only deprive you from all these potential benefits.
Here's why surrendering your life insurance policy is not a good idea!
To be adequately insured is the need of an hour. Stay insured!
Recommended Read:Consequences of not buying Life Insurance