Thinking of canceling your life insurance policy? Reasons why you shouldn’t

There could be many reasons why one could be thinking about cancelling their life insurance policy. You may believe that it will save you money on premiums while increasing your disposable cash.  If you are considering cancelling your life insurance policy, you should take a step back and analyse all of the benefits that a life insurance policy provides. You are overlooking the numerous benefits that life insurance coverage provides you and your family. A life insurance policy’s benefits considerably outweigh the cost. Let’s discuss this question more in the following sections.

Can I terminate my life insurance policy?

Yes, you can. However, the first thing you should ask is, “What will I lose?” Even though cancelling your policy is easy, losing life insurance coverage which your current life insurance policy is providing you and your family could affect them in the long term.

Reasons to Not Terminate Your Life Insurance Policy

Provides future security to your family: If you want to protect your family and ensure their financial security after you die, there is no reason to terminate your life insurance coverage. Your family, which includes your parents, spouse, children, and siblings, relies on you for their needs. As a result, in your absence, they will lose their financial security, leaving them unable to make ends meet. You can offer your loved ones much-needed financial security thanks to the guaranteed benefits of a life insurance policy. The death benefit can serve as a replacement for your income, allowing the family to remain financially stable for a considerable time. A life insurance can be used to replace income for a variety of reasons, including your children’s marriage, your spouse’s retirement needs, your parents’ medical bills, and even general home expenses. However, if you terminate your life insurance coverage before it expires, your family will lose these benefits.

Loss in value: The insurance provider considers your policy null and void if you cancel it in the middle of its term without paying all dues. So, if you’re wondering if you can get your money back for quitting your life insurance plan, it depends on the type of policy. In the case of a term insurance plan, you will not get any of your previous premiums, and there is no monetary value.

However, in some scenarios, insurance firms will allow you to pay a surrender price for specific plans such as endowments, money-back policies, entire life insurance plans, and so on. Even in this case, you lose out on cash value, and the surrender charge is typically very expensive. A hefty surrender cost may defeat your primary goal of cancelling the coverage.

No tax benefits: The Income Tax Act of 1961 provides exemptions from taxes on premiums paid and maturity amounts for life insurance policies. If you terminate your policy before it matures, you will not pay any payments, and your life insurance coverage will lapse. As a result, you are no longer able to claim any tax exemptions. If you claim a tax exemption and then terminate your insurance plan within three months, the deduction is taxable in the year the plan is surrendered.

You might not have peace of mind: Life insurance provides you with the piece of mind that comes with the fact that your family has a trustworthy insurance plan to fall back on in case of your absence. Furthermore, insurance plans include a variety of riders to guarantee that you have the most coverage available against unforeseen circumstances. However, when you cancel the policy, you deprive yourself and your loved ones of this protection.

Buying a new cover will be expensive: When you cancel your current plan, you lose your insurance coverage. This indicates that if you get a life insurance policy in the future, you will most certainly pay more for it than you do now due to rising insurance rates, inflation, increasing age, and so on. Furthermore, you would have to go through the complete process, including the medical examination. Depending on the plan.

Your ability to get a loan will also be gone: Many people are unaware that a life insurance policy can be used to secure a loan. One could take a loan with lower interest rates than others who don’t have a life insurance policy to back with. You can obtain a loan from the same insurance company or bank from which you purchased your insurance policy. An individual can obtain a loan equal to the surrender value of their life insurance policy. The maximum loan a person can acquire is also determined by the type of life insurance policy.

Exclusions Issues may come up: Some life insurance policies include conditions such as no claims allowed within the first year of coverage, among other things. If you cancel your old policy and purchase a new one, and something occurs to you, your family may struggle to receive the sum assured after your death. Always remember that life is unpredictable, and you never know what risks are around the next corner. This is why you must have ongoing and uninterrupted life insurance to help your family in times of need.

So we are saying,

As you can see from the points given above, there are several valid reasons why you should not cancel your life insurance coverage. Cancelling your term insurance coverage can be a waste of hard-earned money. Furthermore, you may have to spend significantly more to purchase the same coverage later. In today’s fast-paced world, term insurance has become a need. It can help your family members meet their needs. If you end your term insurance coverage, your family may be left without a financial cushion. Therefore, you should never terminate your term insurance plan.  However, even after considering these factors, if you still believe your life plan is insufficient in terms of coverage or is far too expensive and you have discovered a better choice, cancel it and go with the better one. However, never terminate a life insurance policy without a backup plan in place, as remaining uninsured is a risky and foolish decision.

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