While it is advised by one and all that opting for a life insurance policy is the best decision of one’s life, some people feel it is an unnecessary expense. For them, life insurance plans are a way to waste money. They feel burdened under the weight of having to pay monthly premiums and feel as if they would be better off without one. To them, this would help save a lot of money that can be invested elsewhere for greater profits.
Are one of them? Are you too thinking about canceling your term insurance plan? Hold on! Whatever is the reason behind you wanting to cancel your life insurance cover, don’t. Try reviewing it if it is no longer meeting your requirements so as to get the most out of your term insurance policy. Even if your needs have changed, having a life cover ensures a protective layer of financial stability upon your dependents after your demise. To put it simply, if you have a family that depends upon you or if you are planning to have a family in the near future, canceling your existing life cover may not be the best decision.
Before canceling your insurance policy keep in mind that canceling a term insurance plan will not fetch you any cash benefits. On top of it, canceling a term plan while it is still active will mean that you will also lose out on the amount you have paid as premium up until now. These are just some reasons behind not canceling your term insurance cover. Let us look at some more in detail:
- Impact of Health & Medical conditions: The above mentioned circumstances will also be applicable if you develop certain health & medical condition. Deciding to buy a life insurance plan if you have a pre-existing illness will greatly impact your plan as well as the premium rates you will have to pay. The serious your medical issues are the more you will have to loosen your pockets to pay for the premiums. One might feel that it is a good idea to cancel your term insurance plan when you are young, healthy and fit in order to save a few extra bucks. However, later in life when you develop some serious medical conditions, you will be forced to shell out a lot more money to avail of the same policy than you are paying now.
- Losing out on the financial cover: If you are the sole breadwinner of your family, your family members including your wife, children and parents will have no one to depend upon after your demise. The loss of a regular source of income can wreak havoc on any family, forcing them to give up on several essential needs and standards of living. Term insurance is a product designed specifically to offer protection as well as financial support in unfortunate circumstances. It works as a steady source of income fulfilling the retirement needs of your spouse, your child’s education, or marriage as well as any unforeseen medical expenses. Canceling a term plan suddenly will end up depriving your family of all these advantages.
- Buying a new policy costs more: If you are over your budgetary expenses, and are looking for ways to cut short your expenditure, canceling your term insurance plan might pop in your head. Some people think that by canceling their plan they will be able to save the money spent on premiums. However, this is an extremely bad idea. By surrendering the term policy coverage you will lose out on the cover you had purchased as well. Others think that they might cancel their plan temporarily and get a new one later. This too is a bad idea as getting the same plan with the exact same coverage in the future will cost you more. The reason why life insurance gets expensive is that its cost increases with the increase in the applicant’s age. Apart from that, if in the meantime you are diagnosed with an illness, you might not even be able to get the same coverage as before. If you are still convinced about getting rid of the burden of a life insurance cover, try to make use of the flexible options offered by your insurance provider. Canceling a term plan is not your only alternative. There are a lot of other ways you can decide to go on.
- Surrender charges: Depending upon your insurance provider, canceling a life insurance plan mid-way not only causes you to lose out on any premiums paid but might also incur some extra charges called surrender charges.
- No more saving taxes: Term insurance plans are known for their tax benefits. Canceling a term plan does not just means that you will not be paying insurance premiums anymore and the insurance provider will no longer offer you life coverage. It also means that by canceling a term plan you will also lose out on the tax benefits it entails. The money invested in a term plan is tax-free but now that you have canceled your life cover, this amount will be taxed as well. The tax-efficient return offered to you will no longer be applicable. Stopping your cover mid-way means losing out on this efficient tax saving instrument.
- Debts will not be paid off: Death might be the end of life but it most certainly is not the end of your debts. People often believe that their debts will cease to exist as soon as they die, freeing them from paying them back. However, just like a little kid who thinks that no one can see him simply by closing his eyes, assuming you no longer owe money if you die is a farce. Lenders will still find a way to get their money back and more often than not they will harass your family to pay them back. Your family will thus have to settle your debts after you. Having a term insurance policy ensures that the death benefit received after your death helps your family in handling such financial issues. They will have the alternative of utilizing this payment to pay off the debts, leaving the rest of the family savings to offer some financial support to them. If you cancel your term plan mid-way however, your family will have nothing to support them financially. They will have to utilize their savings and other valuables like your family home and property to settle the debts. So, save your family from having to go through financial stress along side mourning the loss of you.
- Greater age, more premiums: The premium rates tend to increase with growing age. As a consequence of this if you plan to cancel your term insurance thinking that you will get a new policy later, then you have to remember that your premium rates will be higher. Insurance companies decide the rate of the premiums on the basis of several factors and one of the most prominent factors among them is age. The providers consider the applicant’s average life expectancy, thus making the term plan costlier as one grows older. Canceling your life insurance policy today and expecting to re-apply a few years later will mean that you would have grown older. Age is not something that is under your control and thus your policy is going to get more expensive. Hoping that you get the same benefits when you apply later is possible but it will certainly cost you more.
- Change or loss of job: The premium rates for your term insurance policy might also suffer if you have a change of job in the future. Canceling your policy right now in the hopes of getting a new one in the future can be impacted by several negative factors that can influence the cost of your new policy. When buying a policy, the insurers assume that since you are working in a corporate office, you have a permanent job that comes with a fixed salary and a safe work environment. All these factors make it seem like you are a low risk customer to the insurance provider, thus helping you get a more affordable rate for your premiums. If however you were to change your job and transfer to a riskier profession that requires you to do something dangerous, your coverage will cost you a lot more.
- Change in address: Sometimes even a small change like the change in your postcode can also cause your term insurance rates to go up if you decide to buy a new one in the future after canceling your present one. This is another thing to keep in mind. However, not all insurance providers do this but there are some who still pay heed to such factors. Your location is looked up by your insurance company to decide your risk factor. Several factors like the crime rates in your area, poor neighbourhood etc play a role when deciding the rate of your premiums. For instance, statistics suggest that people residing in poor localities have a higher chance of dying early as opposed to those people who live in the fairly wealthier parts of the city.
- For your peace of mind: Having a term insurance offers you the possibility of living your life stress free. You can leave your worries about your finances behind. One can leave their short- term as well as long- term financial needs to be taken care of by their life insurance plan. The various riders attached to a term plan can offer even greater coverage like a critical illness rider, an accidental disability rider or a waiver of premium rider. These riders give you an even greater amount of calm and peace. Canceling your term life insurance policy will mean that you would also lose out on all its benefits along side your peace of mind.
What can you instead of canceling your term insurance policy?
There are other ways to save some money if you think that canceling your term life insurance is a good idea. Instead of doing that, you can try to:
Change mode of payment:If paying your premiums on an yearly installment plan is too overbearing for your finances, try to convert the premium payment method to quarterly or monthly by talking to your insurance provider. This way you will only have to amass a small sum of money at one go, thus helping you get through financial difficulties.
Drop the riders: Riders come at an extra cost. So if your policy has some add-ons that you do not necessarily need, you can significantly reduce the cost of your coverage by dropping them off. You can opt out of riders attached to your policy at any point in time depending upon your requirements. There is no need to buy an additional rider just because your friends have one.
Lower your coverage:Lowering your coverage will also help lower the premium amount paid by you. This will automatically save you unnecessary expenses in a difficult time.
The Bottom Line
Buying a life insurance policy is an extremely wise decision but continuing to keep a policy without letting it lapse or without discontinuing it is even wiser. It is a great life investment, especially in a world of today that is filled with uncertainties. Making sure that your family’s financial future is secure with an adequate life insurance plan is absolutely necessary. Canceling a term insurance plan will only end up depriving your loved ones of all the potential benefits of this valuable financial tool.