In the event of your unfortunate demise, life insurance provides your loved ones with security. In some cases, you may wish to cancel your life insurance policy for a variety of reasons. Cancelling a life insurance policy is a big decision, so make sure you think about it carefully. Also, you shouldn’t cancel your life insurance policy right away, and this post explains the reasons why you shouldn’t cancel your life insurance policy.
Life Insurance Cancellation: Why You Shouldn’t Do It
Do remember cancellation of term insurance will not fetch you any cash value. If you cancel your term insurance coverage during the policy period, the premiums you paid will not be refunded. Additionally, you should not cancel your life insurance policy for the following reasons:
Your Family’s Financial Future Depends On It
Families would continue to depend on the income and savings of the breadwinner even after they passed away. When a family loses their regular income, they may have to compromise on a variety of essentials and lifestyle needs.
In the event of an unfortunate income loss, insurance provides financial stability and protection. It serves as an income replacement option for children’s education, marriage, spouse’s retirement, and other family needs. All these benefits can be lost if you cancel a policy midway.
Your Finances Can Be Negatively Affected By Surrender Charges
When you think of cutting costs, life insurance premiums may be the first thing that comes to mind. However, cancelling your life insurance plan to save a few bucks, and then buying another plan later is definitely a bad idea. In the future, you might have to pay a lot for the same policy with the same coverage. Moreover, you might not be able to get coverage if you get an unexpected illness.
If you surrender or cancel your life insurance policy midway, you lose cash value growth. Moreover, you incur various charges like surrender charges and tax.
To Save Some Money On Income Taxes
In accordance with Section 80C of the Income Tax Act, of 1961, insurance premiums paid every year qualify for tax deductions. When you cancel the policy, you won’t have to pay the insurer any further premiums and you won’t receive life insurance coverage.
If you surrender the policy, you will lose this tax benefit. When compared to other investment avenues, life insurance policies like endowment plans and unit-linked insurance plans offer tax-efficient returns. If you stop the premium payment mid-way and cancel the policy, you may not get a good tax return.
To Keep Your Mind At Ease
Insurance gives you peace of mind. Life insurance can help you meet your long-term financial needs, depending on your policy. You can also use a life insurance policy as collateral for short-term loans.
There are a lot of investment options in life insurance policies. At an extra premium, it also covers things like accidental disability, critical illness, etc. The benefits wouldn’t be there if you cancelled the policy.
A New Policy Can Be More Expensive
You’ll lose your life insurance coverage if you surrender it. In the future, if you need the same coverage, the same can cost more as life insurance costs go up with age. If you still think that life insurance is a burden, make use of all the flexibility the company offers. It’s not the only option to cancel your life insurance policy. There are a few more options. Such as:
Change Premium Payment Mode
If the premiums are too high to pay on a yearly basis, you can arrange to pay your premiums monthly or quarterly. In times of difficulty, doing this can help you cope.
Drop Off The Riders
In case you don’t need some riders or add-ons on your policy (for which you’re paying extra money), you can reduce your premium by dropping them. Always make sure you pick riders based on what you need.
Conclusion
Life insurance provides peace of mind, financial stability, and investment options that are beneficial over time. Life insurance policy cancellation should be carefully considered as it can impact your family’s financial future, result in surrender charges, and affect your tax benefits. Instead of cancelling your policy, exploring alternatives such as adjusting premium payment modes or dropping unnecessary riders can help manage the costs while maintaining coverage.
However, it’s normal for life circumstances to change, and people might consider cancelling their insurance policy. Aditya Birla Sun Life Insurance Company understands that circumstances may change, and policyholders may consider cancelling their insurance policies. In such circumstances, Aditya Birla Sun Life Insurance offers policyholders a variety of options.
