It is common for individuals to invest in a life insurance plan and then second-guess their investment choice. After months of paying the premium, you may want to terminate the policy to save up on the remaining amount. Many policyholders also consider surrendering their plan after completing some years of the policy tenure. However, you would miss out on numerous perks offered by life insurance policies on exiting it too early. So, continue reading the drawbacks of cancelling your insurance policy below.
- No life cover to safeguard your family
Most policyholders opt for various types of life insurance policies to have a financial backup. In case something untoward occurs, your loved ones need to be financially independent to care for themselves. And insurance plans offer just that! While purchasing the plan, you can choose the sum assured amount based on the family expenses and future needs. But on cancelling your policy, you lose this benefit and your family no longer has a risk cover. So, in your absence, they would have to depend on their life savings, which may not be enough. Thus, a life cover plays a crucial role in providing financial cushioning.
- Maturity benefit will not be available
Wealth creation is another objective of getting life insurance and maintaining it over the policy tenure. As this lump sum amount helps fulfil long-term life goals, it is one of the most lucrative benefits of life insurance. But on exiting your plan early, you cannot reap the benefits of such a payout. Your plans of saving up for a retirement fund or buying a house from the maturity amount will have to be completed with your savings. This is another drawback of cancelling your plan.
- You will miss out on loan against policy feature
Life insurance plans act as a safety net in case of a financial emergency. In case your home loan is pending or you require immediate funds, the loan against insurance can be a lifesaver. If you were to apply for any other type of loan, you would have to complete a lengthy verification process. The disbursement of funds might take longer but not with a loan against policy. Such a backup is vital in the event of urgency but discontinuing your insurance plan takes this benefit away. Hence, you shall have no investment to liquidate without it adversely affecting your finances.
- No tax savings with insurance
With life insurance comes the advantage of saving on taxes. By investing in an insurance plan, you can claim the premiums under Section 80C as a deduction. The maturity or death benefit can be claimed as tax-free under Section 10(10D). You can claim the premiums up to a maximum limit of INR 1.5 Lakh per financial year. But cancelling or terminating your life insurance can mean zero tax benefits available on your policy.
- Risk cover at an affordable rate
A term plan enables you to get a higher sum assured amount at the most affordable rates. This premium is very low when compared to the perks of a risk cover. By exiting your insurance plan without completing the tenure, you lose the sum assured, which would have been available at a cost-effective amount.
Now that you are aware of the drawbacks of terminating or surrendering your life insurance plan, it is advised to continue the policy. Due to the uncertainties in life, all of us require a financial backup just in case. If you haven’t already purchased one, ensure to check out the life insurance calculator to know how much sum assured amount you should opt for!