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Ref. No. KLI/22-23/E-BB/492
If you are confused about what will happen on surrendering your life insurance policy, here's everything you need to know about life insurance closure.
With more people becoming mindful of the upsides of term insurance plans, everybody hopes to get their hands on the most ideal scheme they can on the off chance that their loved ones might need financial help after they pass away. However, there might be circumstances wherein dropping a term insurance plan is the most appropriate choice. We’ll direct you through a point-by-point outline of this other side of term insurance plans, which is known as surrendering your policy.
Surrendering life insurance means cancelling or opting out of your coverage. Determined by the type of insurance you possess and whether it includes a cash value or an investing component, the surrender will entail:
You must be wanting to learn more about what is surrender value in insurance. Simply defined, it is the aggregate value a policyholder will get from their insurance carrier if they choose to close or terminate their policy before it matures. It also depends on whether your chosen insurance plan has a surrender value feature.
Life insurance surrender value may consist of nothing but a simple termination or a lump sum payout, depending on the type of insurance you have.
There is no investment component to term life insurance plans. The provider will simply terminate your term life policy, and you won’t get a payout.
The policy surrender value here is a cash value component. Whenever you terminate these policies, you will get the amount of your investment portfolio unless there are cancellation costs charged by the insurance provider.
Once you terminate whole life insurance, you receive your entire original investment as surrender value in insurance, excluding any costs. Approximately one-third of your premiums are invested in this portfolio over the course of your policy’s term. When you surrender your policy, the insurance company can charge up to 30% as termination costs.
If you fail to pay the premiums required to keep your policy active, the insurance company will offer you a certain amount of time to reinstate the coverage. If the payment is not made, there will be an automatic foreclosure of the life insurance policy as per the insurance terms and conditions.
Tax benefits from insurance policies are one of the most simple and durable ways to cut costs on taxes. Interest paid for life insurance plans is excluded from taxation under Section 80C of the Income Tax Act. However, if you surrender your policy, you will not be able to avail these tax benefits.
If you choose to cancel your term insurance before it matures, your insurance provider will assess the appropriate costs against the paid-up policy value, taking away from the overall surrender value.
Policy premiums are calculated depending on the policyholder age. As a result, if you decide to cancel one insurance and replace it with another in the future, then you will have to pay greater interest than you do now.
To summarise, every policy can be surrendered at your discretion, but you must keep in mind that after surrendering your policy, you and your loved ones are no longer protected. Without any financial security, it can become challenging for you to deal with the uncertainties of life! Therefore, while deciding to surrender your policy, weigh the consequences because more often than not you might end up losing more than gaining!
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Features
Ref. No. KLI/22-23/E-BB/2435
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
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