Reasons Why You Should Not Consider Exiting Life Insurance

If the thought of cancelling your life insurance policy occurs to you, take a moment to evaluate all of the advantages that a life insurance policy provides. You may believe that by doing so, you would be able to reduce your premium outlay and improve your disposable income. However, you are overlooking the numerous benefits of a life insurance policy. A life insurance policy's protection considerably surpasses the investment it entails.

Why Should You Not Cancel Your Life Insurance?

Although policy cancellation is easy and permitted, dropping life insurance and financial protection may prove to be risky in the long term. The following are some of the reasons why you should not cancel your life insurance policy.

1. Family’s Financial Needs and Requirements

No excuse can justify cancelling your life insurance coverage if you want to safeguard your family and ensure their financial security after you pass away. When you are the sole breadwinner, your family looks to you for all of their financial needs. The insurance benefit can serve as a substitute for your salary, allowing your family to maintain financial stability. A life insurance plan can serve as an income replacement alternative for a variety of reasons, including your children's marriages, your spouse's retirement needs, your parents' medical bills, and even general household expenses. However, if you cancel your insurance, they may have to make sacrifices in their lives after your demise. 

2. Loss of Paid Premium 

The insurance company considers your policy invalid if you cancel it in the middle of it or before paying all dues. So, if you're curious if you can get your money back if you cancel your life insurance policy, the answer is that it depends on the policy type. In the case of a term insurance policy, you will not be reimbursed for any already paid premiums, and there will be no cash value. In the case of specialised plans such as endowments, money-back policies, whole life insurance plans, and so on, insurance companies may allow you to pay a surrender charge. Even in this instance, you'll miss out on the cash value appreciation, and the surrender fee is usually rather substantial. 

3. No Tax Savings

The Income Tax Act of 1961 exempts life insurance premiums and maturity amounts from taxation. In addition, as compared to other financial products, some policies, such as unit-linked insurance plans (ULIPs), provide tax-efficient returns on investment. However, if you cancel your policy before it matures, you will not be charged any premiums and your life insurance would lapse. As a result, you are no longer able to claim any tax exemptions. If you claim a tax deduction and then terminate your insurance plan within three months, the deduction is taxable in the year you surrender the policy.

4. New Expensive Plan

You will lose your insurance coverage if you surrender your current plan. This indicates that if you get a life insurance policy in the future, you will most likely pay a larger premium than you do now due to rising insurance rates, inflation, increasing age, and so on. You would also have to go through the complete process as well as a medical examination, depending on the strategy.

Take Away

Can you cancel your life insurance policy? The answer is yes. But, before you decide, keep in mind that life insurance is essential for dealing with life's uncertainties. As a result, make sure you don't let it lapse or cancel it, as you could jeopardise your loved ones' financial future. Moreover, the peace of mind that a life insurance plan provides by covering you and your family is incomparable. 

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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.