Published On : Wed, Oct 28th, 2020

Should You Surrender Your Term Plan When You Have Zero Liabilities?

The primary objective of a term plan is to ensure the financial independence of your family in case of your sudden absence. You may opt for a higher sum assured (SA) if you have outstanding liabilities like a home loan or an education loan.

Your nominees will get the term insurance benefits in case of an unfortunate incident during the policy duration may. They can use this amount to pay these debts. This will prevent your family from financial turmoil while going through an emotionally difficult period.

However, a term plan can prove handy even after you have repaid these financial obligations. If you are contemplating surrendering your term plan as you are debt-free, think again. Here is why this may not be the best idea.

Should you surrender your term plan?

When you do not have any outstanding liabilities or do not have a family to look after your family in your absence, you may feel that you are wasting your money by paying the premiumon your term life insurance. Therefore, you may want to surrender the policy and invest the premium in more lucrative revenue-generating financial products.

Most insurers do not allow you to surrender a regular term insurance plan. However, you can surrender a life insurance policy that has an investment or savings component attached to it.Therefore, if you think that the policy benefits are completely unnecessary, you can surrender the same. However, if your family requires financial support when you are no longer with them, you should not surrender the term policy even if you have repaid all your debts.

Surrender value

You receive the sum as benefits before its maturity date. The policy must include a savings or investment option, such as a unit-linked insurance plan (ULIP) to ensure that the surrender is possible. Additionally, the insurer will not permit thesurrender for a certain period from the date of purchase. This period is often determined based on the total policy duration and the tenure since the policy has been active.

Here are two reasons why surrendering term insurance is not advisable:

  1. Protection from health risks

Even if you have no liabilities, there is always the risk that you may be diagnosed with a critical illness. Treating such illnesses may leave you financially distressed. In such cases, a term plan with critical illness coverage is highly beneficial. If you are diagnosed with a critical ailment, the term insurance benefits are paid as a lump sum as per the terms and conditions. You may use these funds to pay for your treatment or as income-replacement in case you are unable to continue working due to the critical illness.

  1. Securing your family

Your family may be financially stable today; however, the future is uncertain. In case of an unforeseen event, your family may face a financial crunch if you have not done proper planning. When you buy term insurance online, you ensure the economic well-being of your loved ones. In case of your sudden absence during the policy duration, the money that your family members are financially self-reliant and that they can meet their monetary requirements.

An online term insurance plan is an affordable option. Insurance companies can reduce their overheads and administrative expenses, as well as eliminate commissions to agents when you buy an online policy. They pass on these benefits to you via aneconomical premium, which allows you to avail of a greater SA to provide more financial protection to your loved ones.

Before you surrender your term insurance plan,consider the larger picture. Consider the type of plan and the policy benefits to make the right decision. Most term plans are pure life covers with no maturity benefits, which is why surrendering the policy is not advisable.