Are you planning to cancel your term insurance plan? There are many reasons why that may not be a wise decision.
To live a life of peace and stability, one must organise their finances in the right manner. Different instruments, such as investment options, saving schemes, insurance products, and so on, should be opted for at the right time. Some financial products are non-negotiable, such as term insurance. This insurance plan provides financial aid to your loved ones when you are no longer around to take care of them.
Besides this benefit, there are a variety of advantages that term insurance plans provide. This makes it an essential product to have in your portfolio. Cancelling your term plan may lead to you being deprived of these benefits.
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What is the meaning of term insurance?
Term insurance is a kind of insurance policy wherein the insurer agrees to pay a stipulated amount to the policy beneficiaries in the event that the policyholder passes away. The policyholder pays a premium, either in instalments or via a lump sum method, to ensure the validity of the policy until the end of the tenure. Term plans are usually issued for a shorter period of time, as compared to their counterpart, whole life insurance plans. Term insurance plans can be issued for as short as five years and as long as 25-30 years.
Since term insurance plans are solely for the purpose of life protection and do not offer any savings/investment options, their premiums tend to be lower.
Why you should not cancel your term insurance
- No more life coverage
The main reason one buys a term plan is to secure their family’s future in the event of one’s demise. Indeed, if you are the main breadwinner in your family, your absence can lead to financial problems. When there is no longer a regular source of income, running household expenses, paying for children’s education, repaying loans, and so on, may get difficult. If your loved ones have the reassurance of the life cover amount, many of these expenses can get taken care of. To provide this reassurance and to create a worry-free environment for your loved ones, you should not cancel your term insurance plan.
- Loss of substantial tax benefits
Term insurance plans are one of the best ways to save on your taxes. As per Section 80C of the ITA, 1961, one can claim tax deductions up to Rs 1.5 lakhs against their term insurance premiums. Along with this, one also enjoys tax exemptions on the death benefit provided by the insurer. When you cancel your term plan, you no longer benefit from these tax advantages.
Note that these benefits are applicable only to those who have opted for the old tax regime. The new tax regime allows for lower tax rates but does not permit several tax deductions and exemptions.
- No more affordable life coverage
As compared to other life insurance calculators, a term insurance calculator usually estimates a lower premium for the same variables. As mentioned earlier, term plans have relatively low premiums. This makes them an affordable avenue to enjoy life insurance coverage. If you are cancelling your term plan to buy another life insurance product, chances are that you may have to shell out higher amounts of money.
- Absence of peace of mind
The essential meaning of a term insurance plan lies in the peace of mind it provides you after buying it. When you buy a term insurance plan, you not only secure your family’s future but also attain peace of mind to a great degree. This is because you know that if an unfortunate event were to strike you, your loved ones will not have to suffer any financial calamity. Continuing with your term insurance means you can enjoy this peace of mind for a longer period.
Before you cancel your term insurance, consider these alternatives…
One must also consider the reasons they wish to cancel a term plan. If affordability is an issue, you may want to lower your sum assured amount. You can also use a term insurance calculator to check how you can reduce the premium further. Or, if you seek a savings aspect with your term plan, then you may want to opt for the return to premium feature. With this feature, you receive the entirety of the premiums you have paid if you survive the maturity of the policy
We hope these points have increased your understanding of how term insurance plans work and why you should continue your policy.