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Why You Shouldn't Cancel Life Insurance Plan?

IndianMoney.com Research Team | Updated On Thursday, December 12,2019, 05:06 PM

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Why You Shouldn't Cancel Life Insurance Plan?

 

 

Inflation is really high, people have lost jobs and prices are out of control. These are times which can destroy the household family budget. It’s but natural to ask, Should I cancel the life insurance plan or stop paying the life insurance premiums?

Life Insurance is seen as a luxury, rather than a need. Term life insurance is pure risk cover and protects your family against an untimely demise. It’s tempting to stop the life insurance plan and save on premiums. Canceling the life insurance policy is the costliest mistake you can ever make. Let’s see why you must not cancel the life insurance plan.

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Why You Shouldn't Cancel Life Insurance Plan?

Want to cancel life insurance plan? It could be that you feel burdened by the life insurance premiums or you are running short of money. This article will dispel the myths on life insurance in 2 minutes.

1. Life Insurance takes care of family needs

The breadwinner of the family must have term life insurance. This life insurance plan is crucial if you have dependents. You pay a premium and avail a term life insurance plan. Your family (nominees) gets the sum assured called death benefit on an untimely demise, within the term of the plan. There are no survival benefits.

What happens if you don’t renew the term life insurance plan? Well, your family is left without any protection if the breadwinner dies. Repaying car or home loan is difficult and your family could lose these assets. As you get older, the term life insurance premiums increase or you may become uninsurable on contracting a chronic illness.

See Also: How to Choose Between Term Insurance and Whole Life Insurance?

2. Surrendering life insurance is a bad idea

If you decide to terminate the endowment life insurance plan or ULIP before maturity, the insurer pays the surrender value. A surrender charge is deducted which varies across policies. If you terminate the life insurance plan after 5 years, there are no surrender charges. Life Insurance Policies like Endowment plans and ULIPs have a surrender value.

If you surrender the life insurance plan, you receive a much lower amount vis-a-vis premiums paid. Premiums are high in endowment and ULIP plans as most of the premiums paid go towards agent’s commission. Many people surrender life insurance plans early and get almost nothing in return. Surrender value is small as there are charges for canceling the policy.

3. Lose Life Insurance tax benefit

You enjoy a tax deduction on premiums paid for life insurance plans under Section 80C up to Rs 1.5 Lakhs a year. If you cancel the life insurance plan by not paying life insurance premiums, you lose coverage. Surrendering the policy means you lose tax-efficient returns. If you claim tax deduction on life insurance premiums and surrender within a time period of 3 years, the deduction is taxable in the year the plan is surrendered.

See Also: 10 Best Things About Term Insurance

4. Getting life insurance is costly when older

The life insurance premiums rise with age. It’s best to avail of term life insurance when you are young and healthy. Premiums are low and it’s easy to avail coverage. Health conditions could deteriorate as you age and getting term life cover may be impossible. You must be covered for each day there are dependents. Now, you may struggle to pay the life insurance premiums, but life insurers have offered ways to escape the trap.

Alternatives to cancellation of life insurance plan:

  • If life insurance premiums are high, talk to the insurer and get premium payment mode converted to monthly or quarterly.
  • If life insurance plan has riders (This is an additional benefit at higher premiums), get rid of these riders. Riders are availed based on need. Don’t avail riders just because friends and relatives have availed them.

See Also: Things About Term Insurance You Always Wanted to Know

If you don’t avail life insurance:

  • Your family could land in a financial crisis.
  • They could fall in a debt trap.
  • Your child may not be able to live his dreams.
  • The family has no money for anything.

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IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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