Why Is It Important to Renew a Term Insurance Plan?

The term insurance plan is a pure life insurance policy that provides maximum financial benefit at a lesser cost. It is one of the best and most straightforward life insurance plans available on the market, designed to financially protect one's family in the event of the life assured's death. Aside from the minimum paperwork, simply paying your premiums on time can help you maintain a financial safety net for your family. However, failure to renew a term insurance policy has a significant negative impact. It not only expires, but it also puts your family in danger of financial loss in the event of the insured person's death. Let's take a look at why it's so important to renew your term plan.

Why Is It Important to Renew Your Term Insurance Policy?

If you miss a term insurance premium payment, you have a grace period of around 30 days with all insurance companies to pay the premium and have the policy restored. The life term plan enters the lapsed stage after the grace period has expired. Not renewing your term insurance coverage has far more drawbacks than benefits. The following points are notable.

1. Defeats the Purpose of the Policy

Allowing your term insurance policy to lapse due to non-renewal negates the point of purchasing it in the first place. In other words, if you don't have active insurance, you won't be covered. Hence, surviving dependents or family members will not receive any cash benefits if the life assured passes away unexpectedly. Similarly, once a major illness is diagnosed, in addition to paying huge medical expenses, your family will only be involved in a heavy financial burden. Therefore, renewing your term insurance plan on the expiry date will not only protect you but also ensure the financial future of your loved ones.

2. Retake Medical Examination and KYC Process

If you're renewing your plans on time, all you must do is pay the premium sum. It does not matter how good your medical history is because the insurance company must comply with the renewal terms. However, if the term insurance plan expires and cannot be restored, the process will be similar to buying a new policy. You may even need to submit KYC documents and undergo a medical examination again.

Must Read: How Much Term Insurance Cover Do I Require?

3. Increased Premiums

The premium stays the same when you renew your policy, i.e. you pay the same amount you paid when you bought the term insurance plan. However, failure to renew term insurance on time can increase your premiums. Various reasons, including increasing age and changes in medical history, can lead to higher premiums for similar policies. The renewal of your policy on time guarantees that you will not incur any premium or additional costs for term insurance. In some cases, the sum insured may also be reduced in the event of a decrease in income.

4. Loss of Tax Benefits

Term plans not only provide financial security for your loved ones, but you can also take advantage of tax benefits on premiums paid for plan renewals. Under Section 80C of the Income Tax Act 1961, an individual is entitled to claim a tax deduction of up to Rs 1.5 lakh per fiscal year on premium paid. Therefore, if you do not renew your existing policy, you clearly risk losing applicable tax benefits.

5. Increased Waiting Period

If you do not renew the term insurance plan, it will automatically expire. However, next time, no matter where you go to buy a new term plan, you will have to start over, and the waiting period may increase. You should know that an expired life insurance policy cannot be renewed, and you must apply again. Term insurance plans can have a waiting period ranging from 1-3 months to 4 years. The waiting period depends on the person's age and medical history. If an emergency occurs during the waiting period, you and your family will become vulnerable to financial risks.

Take Away

As you may have noticed, not renewing your term insurance plan does more harm than good. Not only will the policy non-renewal harm your family's future financial security, but it will also expose them to increased risks and vulnerabilities. Hence, it is only wise to renew your policy at the right time. Moreover, in today's digital age, you can renew a term insurance policy with the click of a button, providing more convenience, flexibility, and less stress.

Also Read: Tips to Choose the Right Term Insurance Plan

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.