Why You Should Not Surrender Term Insurance Plan

Term insurance is a pure risk protection plan with no additional frills. It is one of the easiest ways to safeguard your family's financial future. It protects them from financial distress in the face of an unexpected crisis or tragedy. If you pass away while the policy is active, the insurance company will pay a sum of money to your family. However, if you don't, it won't pay any benefits to you.

You may have bought a term insurance plan to secure your family in your absence. And, there may arise situations wherein you want to quit the plan before it matures. Maybe you have found a better plan, you no longer have a need for the plan, you are no longer able to pay the premiums, and so on. Quitting or exiting the plan before it matures is known as surrender. When you surrender the policy, you get a term insurance surrender value if you opted for a single or limited pay premium option. Once the term life insurance policy surrender value is paid, your coverage ends and the insurer no longer protects you. This means your family will be left financially vulnerable if something untoward happens to you.

So, if you still have financial dependents who rely on your income or have any unpaid loans or other financial obligations, you may want to reconsider surrendering your term insurance.

In this article, we'll discuss some of the reasons why you should think again if you are planning to surrender term life insurance policy.

Here are a few reasons why you should think twice before giving up your policy - if you still have financial dependents or unfinished financial responsibilities.

1. Your Family Will Be Left Without Financial Support

Term insurance is designed to provide financial security for your loved ones when you are long gone. If you are the sole breadwinner of the family, you are responsible for the needs of your dependent family members like parents, spouse, children, siblings, etc. The guaranteed# death benefit can ensure your family has the necessary financial backup to weather any storm. It can act as an income replacement, helping them stay afloat. By cancelling the plan, you are depriving them of this safety net. Consequently, they will be left with a substantial financial burden, potentially impossible to cope with in your absence. You should therefore consider the financial consequences of cancelling your term plan before taking any action.

2. Your Premiums Will Get Wasted

When you surrender your term plan, the insurance company considers your plan to be null, and your family will be left without any insurance protection. Also, term plans are pure protection plans with no cash value, so you lose all the premiums you've paid in the past. Simply put, the hard-earned money that you have invested in the plan till now will go down the drain.

3. A New Plan May Cost You More

Your insurance coverage ends when you surrender your term plan. As such, if you decide to buy a new term policy again, you may have to pay a higher premium. This is because, as you age, you are more susceptible to diseases due to health and age-related reasons. To compensate for the increased risk you pose, the insurer may charge a higher premium.

4. You Will Lose Your Riders

Term insurance plans allow you to buy riders to get an additional layer of financial protection. They enhance your base coverage at a certain extra cost. If you surrender the policy, believing that it is no longer needed, the rider benefits will cease as well. Therefore, it is important to consider the riders and their benefits before taking a call on surrendering the policy.

5. You Will Miss Out On Tax Benefits*

By investing in a term insurance plan, you not only ensure your family's financial security but also reap the tax benefits* it offers.

• Under Section 80C of the Income Tax Act of 1961, you can claim deductions on the premiums you pay every year for your term insurance plan up to Rs 1.5 Lakhs.
• Under Section 10(10D) of the Income Tax Act of 1961, the death benefit your nominee will receive in case of your untimely demise during the policy term is entirely exempt from tax.

So, if you withdraw a term insurance plan, you will lose the tax benefits* that are associated with it.

The purpose of term insurance is to provide your family with a financial cushion and ensure they can live a comfortable and secure life even in your absence. Withdrawing or surrendering your term life insurance policy means that you will lose your coverage as well as all the associated benefits. When making such a major decision, ensure you consider the potential ramifications it may have on your family, to avoid any hassles in the future.