In times of uncertainty, it is important to provide your family with the financial security they deserve to cope with the cost of emergencies. Especially, if the emergencies take place in your absence. How can one do this? By investing in a life insurance policy. When it to comes to ensuring the financial safety of your loved ones, this is an effective option that you can rely on.
However, there are instances whereupon a policyholder might want to cancel or surrender their policy for some reason during the tenure. If you are a policyholder who is considering surrendering their policy, read more to understand why this can be disadvantageous and why you should stick with your policy.
Understanding the meaning of life insurance
The main confusion that buyers have when it comes to purchasing this policy is: What is life insurance? In simple terms, life insurance is a type of policy in which the buyer and the insurer get into an agreement. As per this agreement, the insurer will compensate the family of the buyer, i.e., the policyholder. This compensation, known as death benefit, is given in the event of the policyholder’s untimely demise during the policy term. The amount is based on the type of policy purchased. This compensation amount can be used by the family of the insured to manage vital expenses while having a financial backup for the future.
Cons of surrendering your policy
The following are the disadvantages you would suffer for surrendering your life insurance policy:
- Waste of your money
It is always advised to start investing early in life insurance as the cost would be low compared to a later stage. There are different plans that have different benefits. Depending on the plan you select, the money that you pay for one type of life insurance could be less compared to a different type. The common thing for these plans is the money you are investing in them.Some plans may not havea maturity benefit attached to them. Surrendering such policiesmid-term not only causes you to lose their benefits but also your money as well.
- Buying a policy at a later stage would be costly
When you invest in life insurance at the age of 30, the cost would be affordable and manageable as per your expenses. However, if you invest in the policy at the age of 45, the cost of the policy would be 2-3x more than what you would pay at the age of 30. The reason behind this escalation of cost is your age. As you grow older, your health goes through changes and you could develop ailments. This means the insurer is undertaking a higher amount of risk. For example, if the premium of your policy when you purchased it at the age of 30 was Rs.35,000 per year, it could increase to Rs. 50,000 if you were to buy it at the age of 45. This is why you should avoid surrendering the policy.
- Reduction in benefits due to charges
Surrendering your policy mid-term has another disadvantage to it. Your insurer will apply charges for surrendering the policy. These charges could significantly reduce the benefits that you are entitled to. If you have defaulted on your premiums as well, that amount could also be deducted from the money that you can receive. Burden on your savings
The policy helps in taking care of your outstanding loans or debts in your absence, if you have any. If you were to pass during the policy term and there is a loan that is to be repaid, the compensation your loved ones receive from the policy would help in paying off the remaining loan amount. However, if you surrender the policy mid-term and were to suddenly pass away, the responsibility of repaying the loan will fall on the shoulders of your family. This means having to repay the loan using savings. A reduction in the amount of savings could be problematic, especially during emergencies.
Staying with your policy for its whole duration will ensure your family stays protected from various life risks and gets to enjoy its other benefits. If you are planning on purchasing the policy, you can use the life insurance calculator to get an idea about the cost of your policy.