Beginner’s Guide: What is Surrender of a Term Insurance Plan?
Updated On May 26, 2021
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Purchasing a term life insurance policy is regarded as one of the most important steps that one should take in their adult life. It assures you as well as your family members, of financial security, stability and wise investments. With a term life insurance, you can stay at ease regardless of life’s many surprises. However, more often than not, people surrender their term life insurance policies.
Here is a guide to the surrender of a term life insurance policy.
What is the Surrender of a Term Life Insurance Policy?
The surrender amount is the amount of money you will receive from the sum assured under your term life insurance company, should you choose to terminate your plan before maturity. This amount that you receive before the end of your policy term is usually lesser than the sum that you had invested. It is definitely less than the coverage you had aimed for.
You are also required to pay a surrender charge if you decide to abandon the life insurance policy before at least five years have been completed since your purchase of the plan. The exact amount of the surrender charge differs from term insurance company to company.
You may also like to read:- Should I Get a Term Life or Whole Life Insurance?
Reasons To Not Surrender Term Life Insurance
You may want to surrender your term life insurance for any reason whatsoever. It might be because your income is not sustainable anymore (in which case, try considering shifting to a cheaper plan) or you feel it is not necessary to have a plan anymore. However, here are some reasons why it might not be a great decision:
You Will Lose Important CoverageA term life insurance helps you out with coverage during crucial times of illnesses, accidents and more. With it, you can rest assured that you will not be completely helpless in such situations. If you quit your plan, you have to give up these benefits.
Costlier Premiums Later OnEvery day adds on to your age which in turn, moves you towards costly premiums. The older you get, the higher the costs of the premiums you will have to pay. Therefore, if you quit your term insurance plan now and try to buy one later, you will probably face costlier premiums.
Loss of Tax BenefitsAmong the many benefits that a term life insurance provides you with, one of the most beneficial are the tax benefits. You will, however, lose these privileges if you decide to abandon your term life insurance policy.
Try to keep in mind the purpose behind your purchase of a term life insurance policy. Even if it is fulfilled, do not surrender your policy as it will only result in a loss. Although the surrender payout may seem tempting, the benefits of having a robust plan are far greater, in the long run.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.