Buying a term insurance plan is an important prerequisite to creating a financially secure
future for yourself and your loved ones. People usually buy a term plan in their 30s or
40s, when they are starting a family and establishing themselves. However, as time
passes by, some people may feel a term plan to be unnecessary. They may have reached
their 60s when their spouse and children are no longer dependent on them. Or they
may not be able to afford the premiums of a term plan at a senior age.
Nevertheless, cancelling a term plan can have several consequences. Hence, you must
be aware of how to go about it and what could happen in the event of term insurance
cancellation.
Can you cancel a term plan anytime?
Yes, a policyholder can choose to cease their term coverage at any point during their
tenure. Term insurance works to provide you with financial protection for the chosen
period. In return, you pay a premium on a yearly basis. This premium can be estimated
with the help of the term insurance premium calculator. The premium you pay keeps
the policy valid for the upcoming year. Thus, since you have already made the payment
for an upcoming/ongoing period, you do not owe the insurer any payments. 6streams
To cancel the term plan, you can simply stop making the payments. The ideal step would
be to reach out to your insurer and inform them of your decision. They would terminate
the policy coverage accordingly.
Note that some insurers may have a cancellation fee clause in their agreement. Charges
or penalties are rare in this scenario. A read-through of your policy agreement may help
you understand the same.
In a term plan with the return of premium feature, the policyholder receives the sum of
total premiums paid at the end of the tenure. In the event of prior cancellation, the
conditions for receiving this payment may differ. One should clarify these matters with
their insurer before proceeding with canceling the policy.
Why avoid cancelling your term plan
Experts suggest that, regardless of age or financial status, one should always have term
plan coverage.
Though one may prepare and plan for the future, one cannot predict when an
unfortunate event will occur. The most effective way to shield oneself from the untimely
eventualities of life is to ensure that there are enough finances to deal with whatever
comes.
You may have paid off your debts, or your investments may have grown exponentially.
But these things do not guarantee a secure financial corpus for your loved ones in your
absence. A term plan, on the other hand, is concerned only with financial protection. It
offers your loved ones a robust amount to help them deal with the financial
consequences of your loss. Whether the markets go high or low or the interest rates
fluctuate, it does not have any effect on your sum assured amount.
If you cancel the policy, your loved ones are bereft of this secure financial protection.
Carrying a policy to the full term also means that you can receive some benefits at the
end, depending on policy conditions. If you have bought a term plan with a return of
premium feature, then you can receive a lump-sum amount totalling all the premiums
you have paid till now.
When is it right to cancel your term insurance plan
There might be circumstances which make cancelling your term plan a better option
than continuing it.
- You do not have dependents to take care of
If your erstwhile financial dependents are no longer reliant on you for their well-being,
then you may consider letting your term coverage go. - You cannot afford the premiums
If you cannot afford the premiums of your current policy, then it may be prudent to stop
paying them. This does not mean that you must lack term coverage completely. You can
instead buy a new term plan with a lower sum assured and premium. A term insurance
premium calculator can help you determine how best to balance the variables to reach
an affordable premium. - You want a different type of life insurance
If you are planning to buy a ULIP or an endowment plan, then it may make more
financial sense to cancel your current life insurance coverage.
It is advisable to connect with a financial consultant and get their expert opinion before
going ahead with any major decisions.
