Buy a term plan and secure your family
While walking the uncertain trail of life one might come across situations where they feel that are left with no liabilities, no outstanding debts/loans, nobody to take care of, no requirement for health coverage. In such situations the premium paid by the insured might appear to be an unnecessary financial burden.
Policyholder can surrender term insurance if they are not left with any liabilities to take care of. Usually retirees managing their expenses on pension encounter such situations. Unless the insured party is suffering from any life threatening disorder or medical condition term insurance plans are not the right choice of investment to be considered.
Contrary to the situation mentioned, the loss of the sole breadwinner of the family can turn into a dreadful nightmare. Individuals with dependents should not consider surrendering their term insurance plan as it might cause immense trouble in case of loss of the breadwinner’s life.
It is possible to exit from a term insurance policy before its maturity. The primary benefit of surrendering the policy before its maturity is that the policyholder is entitled to receive a portion of the premium back after deducting the processing fee and charges. The surrender charge can be levied off depending on the type of plan. If the insured party renounces the policy after a time frame of five years, policyholder will not be entitled to receive any surrender value.
An important point that is to be taken into consideration while surrendering a term insurance is that plans that include an investment or savings component associated with them would qualify for receiving surrender value. Pure risk protection term plans do not qualify for any surrender value. Contrary to this other investment plans like ULIPs qualify for surrender value.
A common misconception amongst a lot of policyholders is that if they stop paying premium for their term insurance plan there policy will be automatically surrendered and eventually they will receive the surrender value. In order to accrue the surrender value of the term insurance plan there is a pre-defined time period for which consistent payment of premiums should be made. Usually if the period of the plan is equivalent to ten years or less than ten years, the policyholder should pay the premium regularly for at least two years. However, if the premium paying period of the plan is more than ten years the policyholder is supposed to consistently pay premiums for at least three years. In case the policyholder is unable to pay the premium for the minimum period, no surrender value is payable from the insurer’s end.
Another approach that helps a lot of policyholders to counter such situations is converting the existing policy into a paid-up plan. Once the payment of the premium is completed, the insured party is free from outstanding payments. In such a scenario, the plan remains intact until the policyholder voluntarily terminates the plan which enhances the utility of the insurance plan as it provides coverage until the maturity. However, facility of voluntary arrangement is available in case the policyholder has made consistent payments of the premium for a period of three years.
Based on the total amount and the time at which the policyholder decides to surrender the plan, insurer pays a pre-decided percentage of the premium paid by the insured.
As mentioned earlier the primary objective of getting a term insurance plan is to provide financial security to your loved ones. If you are somebody with a couple of dependent ideally you should not consider surrendering your term insurance plan as it might cause of trouble later. In case of any unfortunate event term insurance plans cover the expenses incurred.
However, contrary to the first situation if you don’t have any dependent to look after, paying for a term insurance plan is a vain investment and you always go ahead and surrender the plan.