Why it’s Not a Good Idea to Surrender Your Term Insurance Plan Now
Uncalled exigencies cannot be avoided. And although such emergency situations are usually out of control, we need to have an emergency fund or a backup fund, to help us take care of such unexpected expenses. However, those who do not have sufficient savings or an emergency fund, such individuals usually end up surrendering their term insurance plan with the hope of receiving the cash value. However if you think about it in the long run, this may not be a feasible option. A term plan is supposed to offer your cover throughout a specific period of time.
Here are some of the reasons why we feel that no matter what happens, surrendering a term plan may not be a good idea:
The entire idea behind getting a term insurance plan is that you are providing your family members with a financial cushion which can help them in your absence. But when you surrender your term insurance policy prematurely, you automatically terminate the cover the term plan was supposed to offer you. What is the point of getting term insurance if you cannot help your family in your absence? When you discontinue a term insurance plan, you are putting your family’s future at risk.
If you are young and brought a term insurance plan, after a few years you may feel that you do not need the insurance plan and might want to surrender it. But you need to think that the whole idea behind buying a term insurance plan was to give your family members a financial cushion so that they can lead a sustainable lifestyle even in your absence. So, surrendering a term plan after a few years to benefit from some surplus capital may not be a good idea after all. The last thing you want is your family to suffer in your absence.
The good thing about term insurance plans is that they allow you to increase the coverage in future. For example, if you bought a term plan at the age 0f 25 that offers coverage of Rs. 1 crore. In a few years, if you get married you can increase the term insurance cover up to Rs. 50 lakhs more. In the following years, you can increase the cover of your term insurance to Rs. 25 when you become a parent for the first time.
A term insurance plan offers lumpsum payment to your family members in your absence. You do not want to miss this term insurance benefit by prematurely withdrawing your plan. Did you know that term plans also offer monthly income plan options? This means that along with a lumpsum your nominee will also receive a fixed income every month. The fixed income received through a monthly income plan might help your family make their monthly ends meet and help them pay for utility bills, school fees, groceries, etc.
You may be a fit and healthy individual today, but with old age you never know what kind of health issues may arise. The policy holder receives a cash payout in case of a diagnosis of a critical ailment. But if you surrender a term insurance plan prematurely, you will lose out on this benefit as well.
If you surrender a term insurance plan you will even miss out on tax benefits. Section 80C of the Indian Income Tax Act, 1961 allows tax exemptions of up to Rs. 1.5 lakhs for investments made in a term insurance policy.
So next time, you think of surrendering a term insurance plan for immediate lumpsum benefits, think again.