A Guide on Why You Should Not Cancel Your Term Life Insurance Policy
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In India, unemployment cases have risen over the past few years, especially during and after COVID-19. This fatal pandemic brought the entire global economy to a standstill. India is no exception. During the pandemic, several organizations in India laid off their employees, resulting in extreme financial difficulties for families. This blog tells you about why you should not cancel term life insurance policy .
Moreover, the cost of several items soared due to inflation. To cope with unemployment and inflation, families are trimming their expenses to manage within constrained budgets. In this scenario, many people may consider canceling their term life insurance policies to save money that can be used in other ways.
However, before taking this huge step, it’s important to remember that uncertainties can hit at any time without any notice. A term life insurance is the best way to take care of the financial needs of your family in your absence.
What is Term Life Insurance?
A term life insurance is a simple life insurance policy that offers death benefit in case of the sudden demise of the policyholder during its tenure. Many insurance companies offer affordable term insurance plans to their customers. You can easily compare those plans and pick the best life insurance policy in India to strengthen your financial portfolio.
Reasons to Invest in Life Insurance
- Life insurance offers risk coverage (provides financial protection against various untoward events)
- It encourages you to save money for future
- Many insurers offer bonuses that gradually enhance your investment. The returns received from insurance plans help fulfil various goals (children’s education, higher studies, and a secure retirement life)
- It reduces stress
- There are several tax benefits of life insurance policy. As per the Income Tax Act, 1961, you’re eligible for income tax benefits against the premiums of your life insurance plans
These are some of the benefits of life insurance that you should be aware of before withdrawing your policy plan. Now let’s look into why it isn’t a good idea to withdraw your life insurance plan.
5 Reasons Why you Should Not Abandon Your Life Insurance Policy
If you’ve been thinking about what are the benefits of life insurance, then the answer is – unlimited. Life insurance plays a pivotal role in your financial portfolio. Although you’re free to cancel the policy at any time, losing out on financial security can make your life difficult in future.
1.Family’s financial security will be lost
It’s your responsibility to protect the financial needs of your family members when you won’t be around. If you are the sole bread-earner of the family, every family member ( parents, spouse, children and siblings) are likely to depend on you for meeting their needs. They’re also likely to face financial turbulence in your absence if you haven’t created a backup plan to protect their future.
The insurance benefit that your family will receive after your demise may act as an income replacement. This amount helps in the education of your children, managing the retirement needs of your spouse, taking care of the medical expenditures of your elderly parents, and supporting other household expenses. However, if you cancel your policy before the tenure, your family won’t be entitled to receive all these benefits.
2.You need to pay more money to purchase new insurance
Many policyholders often withdraw their life insurance policy, thinking that they will buy them in future as per their requirement. However, it’s important to note here that you’d need to pay more to purchase new plans. Insurance premiums are calculated based on your age. To purchase a life insurance plan with the same coverage, you need to pay higher amounts in future. In later stages of your life, you might struggle a lot to pay these premiums. Moreover, if you’re diagnosed with a life-threatening illness, the insurer may reject your application or the company might offer low coverage.
3.You will not be eligible for income tax benefits
As per section 80 C of the Income Tax Act of 1961, all insurance premiums are eligible for tax deductions. By paying premiums for your life insurance policy, you can avail tax benefits up to Rs. 1.5 lakh per year. Hence, term insurance plans are not only valuable in protecting the financial security of your family but will also help you save on tax. If you withdraw your insurance plans, you can’t claim these tax deductions.
4.Your family can’t pay your liabilities
In case of your sudden demise, your family members will be responsible for all your liabilities. In the absence of any insurance coverage, they may even need to sell some valuable assets to repay your debts/loans. It is then your core responsibility to protect the finances of your family by purchasing a life insurance plan.
5.It will make your life more stressful
Life insurance is a stable backup plan that offers complete peace of mind. A comprehensive life insurance policy will help you meet all your long-term financial needs and requirements. You may also take loans against your life insurance policies and fulfil all short-term goals. Moreover, life insurance plans come with many add-on riders to strengthen your policy plan. Once you cancel the policy, you and your family members won’t be entitled to any coverage.
How Do You Manage Your Premiums in Place of Canceling the Policy?
- If you find difficulties in managing your yearly premium, then talk to your insurer and change the mode of payment to monthly or quarterly. This will help you to manage expenses in difficult times.
- Sometimes your policy plan has riders which may not be appropriate for you. To minimize your premiums, you can drop off some of these riders and choose the ones based on your needs.
If you cancel your policy, your family might struggle with financial coverage and protection. Avoid taking any decision in haste and don’t cancel your policy.
Why You Should Not Cancel Your Term Life Insurance Policy
Term life insurance is a type of life insurance policy that provides coverage for a specific period of time, typically 10, 20, or 30 years. If the policyholder dies during the term of the policy, the death benefit is paid out to the beneficiaries named in the policy.
There are a few reasons why someone might consider cancelling their term life insurance policy, including the belief that they no longer need the coverage, the inability to afford the premiums, or the desire to cash out the policy's value.
There are several reasons why cancelling a term life insurance policy is not recommended. Firstly, if the policyholder were to die after cancelling the policy, their beneficiaries would not receive any death benefit. Secondly, if the policyholder were to develop health problems after cancelling the policy, they may not be able to get coverage at the same rates or at all. Lastly, if the policyholder cancels the policy and then later decides they need life insurance coverage, they will likely have to pay higher premiums due to their increased age.
If someone is unable to afford the premiums on their term life insurance policy, they may be able to lower their coverage amount or switch to a longer term length. Alternatively, they may be able to borrow against the cash value of a permanent life insurance policy, which could provide them with the financial assistance they need while still maintaining their life insurance coverage.
Typically, there is no penalty for cancelling a term life insurance policy, as these policies do not have a cash value component. However, it is important to review the policy terms and conditions to ensure that there are no cancellation fees or penalties.
Author Bio
Paybima Team
Paybima is an Indian insurance aggregator on a mission to make insurance simple for people. Paybima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. Paybima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.
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