If the thought of cancelling your life insurance policy strikes your mind, you must pause and reconsider all the benefits a life insurance policy offers. You might think that it is likely to save the premium outflow and increase your disposable income. But you are neglecting the multiple advantages of a life insurance plan. The protection presented by a life insurance policy far outweighs the investment it demands.
So, can I cancel my life insurance policy?
Yes, you can.
However, the immediate question you need to ask is “What will I lose?” Even though policy cancellation is possible and allowed, losing out on the life cover and financial safeguards could prove to be risky in the long run.
Reasons why you should not cancel your life insurance policy
- Family’s future security:
If you seek to protect your family and care for their financial security after you are gone, no reason can justify the life insurance policy cancellation decision.Your family, including parents, spouse, children and siblings, depend on you for their needs. Hence, in case of your absence, they would lose out on their financial security, leaving them struggling to make ends meet. Your family might have to compromise on their standard of living and severely cut down expenses if you do not plan for their future.
With a life insurance policy’s guaranteed1 benefits1, you can provide the much-needed financial assurance to your loved ones. The insurance benefit can act as a replacement of your income, helping the family to stay monetarily stable. Whether it is the marriage of your children, retirement needs of your spouse, medical expenses of your parents, or even general household expenses, a life insurance plan can function as an income replacement option. However, if you cancel your life insurance policy before its tenure, you will deprive your family of these benefits.
- Loss in value:
When you cancel your policy mid-way, before paying all dues, the insurance company considers the insurance plan null. So, if you are wondering if you get your money back on cancelling your life insurance plan, then the answer depends on the type of policy. In case of a term insurance plan, all the premiums you paid before will not be returned to you, and there is no cash value as well.
However, in some cases, the insurance companies allow you to pay a surrender charge in case of specific plans like an endowment, money-back policies, whole life insurance plans, etc. Even in this case, you end up losing out on the cash value growth, and the surrender charge is usually very high. A high surrender cost might defeat your prime motive of cancelling the policy.
- No tax benefit:
The Income Tax Act, 1961 offers tax exemptions on premiums paid and maturity amountfor life insurance plans. But if you cancel your policy before maturity, you do not pay any premiums and your life cover lapses. This, in turn, makes you ineligible for making any tax exemptions claims. If you have made a tax exemption and you cancel your insurance plan within three months, the deduction is taxable in the year the plan is surrendered.
- Loss of peace of mind:
Life insurance offers you peace of mind that when tough times come, you have a reliable insurance plan to fall back on. Moreover, with a life insurance plan, you can easily fulfil your long-term financial goals. You can also keep your life insurance as a mortgage and get a loan for any short-term requirements. Further, insurance plans offer several riders2 to ensure you get maximum coverage possible against uncertain times. But when you cancel the policy, you deprive yourself and your loved ones of this security.
- A new cover is expensive:
When you surrender your existing plan, you lose out on the insurance coverage. This means that in future when you buy a life insurance policy, it is more likely that you would be paying a higher premium than today, owing to rise in insurance prices, inflation, increasing age, etc. Moreover, you also would have to go through the entire process and medical examination. Depending upon the plan.
Get affordable life insurance covers from Tata AIA Life
Tata AIA Life understands your financial constraints and the need to provide financial security for your family. You can easily secure the future of your family by choosing our economical term life insurance plans.
Our term plans offer unique benefits and allow you full freedom to choose affordable sum coverage and have a premium payment frequency that suits your financial budget. So, instead of cancelling your life insurance plan and making your family vulnerable to future uncertainties, you should consider affordable Protection Plans from Tata AIA Life Insurance Life. Be wise, think holistically and do not make any decision in a hurry.