In light of the rising inflation, many people are trying to streamline their spending and cut down their expenses to make room for more savings. And, if you are thinking of cancelling your life insurance policy to save money, you should think twice before reaching such conclusion.
In the event of a tragic incident, a life insurance policy would come handy in securing your family’s financial needs. Cancelling your insurance could be an expensive decision. Let us look at the reasons why you should not cancel your term insurance.
Take care of your family’s future financial needs
If you are the only earning member in your family, the family members may rely on you for all their financial needs. In the event of any unfortunate incident, they may not have any means to take care of their everyday needs and struggle financially.
When you cancel your term insurance, you would deny your family members the death benefit, which they are entitled to receive otherwise. Typically, a term insurance plan has a large sum insured, which guarantees family members stability and allows them to be financially independent even in your absence.
In a nutshell, term insurance plans can work as an income replacement for your family. So, don’t cancel it and deny your family the income they need for their everyday expenses.
Your family may not be able to pay off the dues
If you have large debts like a home loan or car loan, and you pass away before repaying the full amount, the repayment burden may fall on your family members. Without a term insurance cover, they may struggle to repay the same. In the worst-case scenario, they may have to sell off a precious asset to settle the debt or use the savings.
Hence, if you have any dues, it is better to avoid cancelling your life insurance policy until you repay it.
Buying a new insurance policy may get costlier later
Many people tend to take hasty decisions and cancel their term life insurance policy to save money on the premium payment and believe they can purchase it anytime later. However, you must know that this can be a costly mistake.
While you may purchase a term plan of your choice anytime, you may end up paying more during old age. This is because the term insurance premiums increase with age. So, if you buy a term plan with the same coverage, it will be costlier in the future than before.
Also, if you are diagnosed with any serious illness, there is a risk that the insurer will deny offering you insurance protection.
You would lose on getting tax benefits
The premium you pay for term insurance is eligible for tax deduction under Section 80C of the Indian Income Tax Act, 1961. You can get a deduction of up to ₹1.5 lakhs in a financial year and reduce your overall tax liability.
However, if you cancel your term insurance policy, you may not get the tax benefits. More importantly, you will leave your family vulnerable to financial difficulties if something happens to you.
Cancelling your term plan before the end of its actual tenure would mean you lose insurance protection as well as the premium you have paid so far. So, before you take any such decision, assess its implications, and try not to cancel the plan as much as you can.