Surrendering the term plans implies terminating the insurance contract. There are different reasons why people choose to surrender their insurance plan. Some include attractive new insurance plans, inability to pay insurance premiums, lack of adequate benefits, etc. Irrespective of the reason, surrendering your term plan might not be a good option, especially if your insurance contract is in the final phase. Here is why:
What happens when you surrender your term plan?
When you surrender your term policy, your term insurance stands cancelled, and you are no more protected by the insurer. Besides, since term plans do not have a cash value and only offer pure life cover, you lose out on all the premiums previously paid.
Why should you not surrender your term plan?
It is not advisable to surrender your term plan because:
1. It can impact the financial security of your family in your absence:
Term plans provide financial security for your loved ones after you are gone. But when you cancel the plan, you devoid your family of this security. Your parents, spouse, children, siblings, etc., depend on you for their needs. And your absence can leave them financially struggling if you do not plan for their future. With term plan guaranteed death benefits, you can provide the much needed financial assurance to your family. The insurance benefit can act as a replacement of your income, helping the family stay monetarily stable.
2. You will lose out on the insurance cover as well as the premiums paid previously:
When you cancel your term plan, the insurance company considers the insurance plan null, and the insurance cover ceases to exist. Moreover, since term plans are pure protection plans with no cash value, all the premiums you paid before are lost.
3. You cannot claim any tax benefit for the premiums paid:
As per the Income Tax Act, 1961, you can claim tax exemption on the premiums paid for term insurance plans. But, when you surrender your policy before its maturity, you do not pay further premiums and your life cover lapses. Hence, you cannot opt for any tax exemption for the same. If you already have made a tax claim and cancel your term plan within three months, the claimed deduction becomes taxable in the year you surrender the policy.
4. You lose out on peace of mind offered by a term plan:
Term insurance gives you peace of mind that when tough times come, your family has a reliable insurance plan to fall back on. The policy benefits can help them meet their long-term financial goals. Further, term insurance plans offer several riders such as protection against major illness, disability, etc., enabling you to secure maximum coverage possible against uncertain times. But when you surrender the term plan, you deprive yourself and your family of this security.
5. A new term cover will be expensive:
When you surrender your term plan, your insurance cover is gone. This means that you would need to invest in new term insurance in the future. And you would likely be paying a higher premium than today, because of rising insurance prices, inflation, increasing age, health issues, etc. You would also need to go through the medical exam again that can influence your premium.
That said, rather than surrendering the policy, it is wiser to opt for a term cover that meets your requirements and budget. Trust Kotak Life Term Insurance Plans to provide you extensive coverage at premiums that do not hurt your pocket and features that adequately fulfil your needs.
