Insurance

Why Cancelling Your Term Insurance Policy Is Not The Right Thing To Do?

Term insurance is a life insurance product that provides a life cover to secure your family in the event of your unexpected death during the policy term. In India, term insurance is an affordable way to protect your family and help them manage their financial obligations in your absence. However, some of you may cancel your term insurance policies for various reasons. 

Here is a detail about why cancelling your term insurance policy is not the right thing to do in India.

  1. Loss of protection – When you purchase a term insurance policy, you pay premiums to the insurer regularly in exchange for coverage. If you meet with an unexpected death during the policy term, the insurer will pay a death benefit to your designated beneficiaries. This death benefit can cover expenses such as outstanding debt payments, children’s tuition fees, and your family’s routine living expenses.

If you cancel your term insurance policy, your family will no longer have this financial protection. It can leave your family struggling to make ends meet and can lead to financial instability.

You can choose customisable products if a financial crisis is a reason to cancel the policy. For example, Tata AIA term life insurance plans provide the option to increase the sum assured at different milestones in your life. Therefore, you can pay a higher premium for your term insurance plan based on your salary increments and family commitments. 

  1. Difficulty in obtaining new coverage – When you apply for a term insurance policy, the insurer will assess your risk profile to determine the premium for your policy. Factors that are considered in this assessment include your age, health, lifestyle, and occupation. The younger and healthier you are, the lower your premium will be. As you age, it becomes more likely that you will develop health problems or lifestyle habits that increase your risk profile, leading to higher premiums.

If you cancel your term insurance policy and then decide to apply for a new one later, the insurer will assess your risk profile again to determine the premium for the new policy. If your age or health has worsened since your last policy, you may find that you cannot obtain new coverage at an affordable price, or you may be denied coverage altogether. The insurer may consider you too high of a risk to insure.

  1. Loss of premiums paid – When you purchase a term insurance policy, you pay premiums to the insurer regularly based on the type or term policy and the required sum assured. These premiums are a form of investment in your family’s financial protection. 

Suppose you cancel your term life insurance policy. In that case, you will only be able to receive the premiums you have already paid if you choose the return of premium option, which is available at additional cost.

  1. Decreased financial stability – Some of the best life insurance policies provide varied add-on riders that extend financial support during the policy term when there is a financial emergency. 

Therefore, term insurance is an important part of a financial plan, as it helps to provide financial stability for your family in the event of a medical emergency, disablement of the insured or untimely death. 

If you cancel your term insurance policy, you will take away important emergency financial support, which can negatively affect your family’s financial well-being.

  1. Loss of tax benefits – Term insurance policies offer tax benefits under the Income Tax Act in India. Under Section 80C, you can claim a tax deduction on premiums paid. If you have opted for health-based riders, you can claim an additional deduction under Section 80D.

Cancelling your term insurance policy means you can no longer claim these tax benefits and make purchasing a new policy more expensive.

Conclusion

Term insurance cancellation is not the right thing in India. Term insurance provides vital financial protection for your family, and cancelling your policy can lead to a loss of protection, difficulty in obtaining new coverage, the loss of premiums paid, and decreased financial stability. Therefore, it is important to carefully consider the consequences before cancelling your term insurance policy.

 

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