Life insurance products have been in the market for a long time. From traditional to non-traditional plans, the insurance industry has evolved at large. The primary reason for the formulation of each life insurance investment can be to provide financial support to your loved one in your absence.
Since your family might be your top priority in life, you would have purchased a life insurance investment plan for their long term safety, irrespective of the cost. However, the price of your insurance policy might not be constant. After specific years, your insurer might increase the premium amount. The rise in the premium value might make it difficult for you to continue the policy. Although you might be unable to afford the premium, you should not surrender your life insurance policy since it ceases all the on-going benefits.
Before you decide to cancel your policy, let’s go through the top four reasons which highlight the cons of surrendering your life insurance investment plan:
- You would no longer be eligible to protect your family financially
Every household might have at least one breadwinner of the family. As the earning member, your family can depend on you financially to meet their needs. If anything happens to you in the future, your family might suffer financially when you wouldn’t be around to look after them.
Since your family’s financial future might be in your hands, you should buy life insurance investment plans to keep them secured in your absence from the eventualities of life. A life insurance investment plan can provide a monetary payout to your family after your demise. With a payout, your loved ones can ensure their financial sustenance in the long run.
- Your insurance would cease the tax benefits
As an investor, you might look forward to reducing your tax liability at every given point. Reducing your tax burden can allow you in saving more money and accumulating more funds for fulfilling the goals of your family. If you want to save your taxes, you should invest in tax-saving options.
Many life insurance investment plans that fall under Section 80C of the Income Tax Act, 1961 can allow to decrease your tax liability. When you purchase a tax saving investment plan in accordance with Section 80C, you can claim a deduction up to Rs. 1,50,000 on your taxable income. However, if you cancel your life insurance investment scheme, you would no longer hold the tax benefits.
- You might have to pay a relatively high price at an older age
When you purchase a life insurance policy, you should pay the premiums regularly. However, the rate of the premiums can depend on your age. Since your age plays a crucial role, your premium might largely vary. Purchasing a life insurance product at a young age can be affordable since you are fitter.
At an older age, you can be at risk of suffering from severe health conditions such as cardiovascular diseases, cancer, kidney failure, and so on. Due to the threat of relatively complex health conditions, your insurance company would charge you more. In simple terms, the complex your health, the high your premium amount.
- Your insurance provider might offer a low surrender value
Many insurers provide surrender value after you decide to discontinue your long-term investment policy. For instance, if you surrender a Unit Linked Insurance Plan (ULIP) or an endowment policy before the maturity, your insurer can be eligible to pay the surrender charges. However, if you wish to surrender a policy after the completion of 5 years, you would receive zero charges.
As a policyholder, you can receive relatively low surrender charges than your total premium amount. Although you might plan on surrendering your policy early, you might still end up getting nothing as your return on investment. Typically, the surrender value can be minimal since there are additional charges for the cancellation of the policy.
In a nutshell, cancelling your current life insurance investment might seem like the right choice if you are dealing with an internal financial crisis within the family. However, discontinuing a life insurance policy may not be a wise choice since it looks after your financial well-being during an unannounced emergency. If you are not in the right condition to pay the premiums of your policy, you can convert the premium payment mode to monthly or quarterly. Moreover, you can get rid of the excessive riders since it might increase the total price of the policy.