Cash Benefit in Term Insurance

Written by : Knowledge Centre Team

2025-12-25

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Thinking about planning your finances with life insurance? Good idea. You can create a safety net for your family against any unforeseen incident. A term insurance plan, which is affordable and cost-effective, is one of the most popular options. However, policyholders pose one common query. Can they get any cash benefits from a term plan during their lifetime? If you, too, have been pondering this, delve into these aspects.

Key Takeaways

Term insurance does not offer any cash value during the policyholder’s lifetime. It provides only life coverage for a fixed term.
Cash value is available with permanent life insurance plans (like whole life or ULIPs), not standard term insurance.
If you surrender a term plan, you won’t receive any payout unless it includes a Return of Premium (ROP) benefit.
ROP plans, such as iSelect Smart360 by Canara HSBC Life Insurance, return your premiums if you outlive the term.

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A Closer Look at Term Insurance Plan: What it Means

You get life coverage for a specific period when you sign up for term insurance. This is known as the policy term. In the event of your demise, your beneficiaries get a lump sum as death benefits. However, if you outlive the policy term, you don’t get any more coverage unless you renew the policy.

Know the Cash Value for Life Insurance

Do you know that cash value is a feature that is associated with permanent life insurance, including whole life insurance? A portion of the premium you pay is allocated to build a cash reserve that grows on a tax-deferred basis. You can access this accumulated cash value through loans or withdrawals to fund the various financial needs of your life. This component acts as a living benefit and comes in tandem with the death benefits that your nominees will get.

Did You Know?

Many term policies are also “convertible,” as they can be converted into a permanent life insurance policy.

Investopedia

How Cash Value in Life Insurance Works?

Life insurance with cash value is largely divided into two components - lifelong coverage with death benefits and an investment account that builds cash value. Here’s how it works to your advantage:

Lifetime Coverage: With this kind of life insurance, you get death coverage as long as you pay your premiums. So, no matter what your age or reason for passing away, your nominees will get the death benefits.
Accrued Cash Value: Every time you pay a premium for your cash value life insurance, a percentage is invested into a cash value account. The remaining amount goes towards life coverage. Over the years, your cash value account accrues interest and dividends, which add up to the accumulated amount.
Enjoy Cash Benefits in Your Lifetime: The death benefits of life insurance go to your beneficiaries. But when you have a cash value life insurance, you can enjoy the accrued cash benefits while you are alive. You can withdraw this amount or take a loan against it. You can also surrender the policy to access the full cash value.

Understanding the Reality of Cash Value in Term Insurance

Term insurance policies do not accumulate any cash value, and the insurer uses the premiums paid to cover the cost of the insurance. Thus, throughout the duration of the policy term, there are no savings or investments made to build a fund. It focuses only on giving you life coverage at a low premium and does not offer any other financial features.

Reasons Term Insurance Plan Does Not Offer Cash Value

Term insurance guarantees a safe financial future for your family. However, it does not offer any cash value like the other life insurance policies. Here’s why:

Lower Premium: Term insurance plans do not accumulate any cash value, and the premium is used to offer risk coverage. Hence, the premium is comparatively lower than whole life insurance and ULIPs.
Straightforward: Term insurance is designed to give you life coverage and ensure that your family is taken care of even when you are not around. It is a simple policy that gives you complete risk coverage at a low premium and does not involve any complexities of cash building.

What Happens When You Surrender a Term Insurance Policy?

Thinking of surrendering your term insurance in exchange for cash? While this is possible with cash value life insurance, term plans do not bring you any cash benefits when surrendered. Since these do not have any cash value, there is no accumulated amount to be returned at the time of surrender. Therefore, if you decide to cancel your term insurance policy before the end of its term, you forfeit the coverage without receiving any financial return.

Term Insurance with Return of Premium - A Better Alternative

While there is no cash value for a term insurance policy, its benefits cannot be overlooked. With the life coverage it offers, your beneficiaries can get a lump sum if anything untoward happens to you. But what if you outlive the policy term? In such a scenario, you do not get any financial returns unless you sign up for a plan with a return of premium option.

For instance, the iSelect Smart 360 Plan by Canara HSBC Life Insurance is a great choice. It offers risk coverage, additional riders for self and family, and returns the premium at completion of the policy period.

Steps to Take If You Have Outlived Your Term Insurance

Has your term insurance policy period ended? Here’s what you can do:

Renew Your Term Plan: If you still have financial goals and responsibilities towards your family, renewing your term insurance can give you coverage. However, you may have to reassess your insurance requirements and make some adjustments to the premium based on your current financial health.
Go for Another Insurance Policy: Don’t want to renew your term insurance? Sign up for a new insurance plan that gives you the required coverage and better monetary benefits. For example, invest in the ULIP plan by Canara HSBC Life Insurance. This is a market-linked life insurance plan that offers both investment potential and life coverage. Some ULIPs may allow partial withdrawals after a lock-in period to help meet short-term financial needs.
Convert into Permanent Life Insurance: Many financial organisations allow you to convert your term plan into a permanent life insurance policy. Choose a plan that gives you enough coverage and also attractive maturity benefits.

Conclusion

A standard term life insurance plan only provides mortality benefits to your nominees or beneficiaries. It does not generally hold a cash value while you are alive. Its primary purpose is to provide effective and affordable coverage for a specific period of time. If you want life coverage and cash value, invest in ULIP or whole life insurance plans that Canara HSBC Life Insurance offers. You can also explore the term plans to return the premiums if you outlive the policy. Assess your financial goals, coverage needs, and budget constraints when choosing between term and permanent life insurance products.

Glossary

Sum Assured: The guaranteed amount paid to the nominee in case of the policyholder’s demise.
Rider: An additional benefit that enhances a term insurance plan, like critical illness coverage.
Term Insurance: Term insurance is a type of life insurance that offers financial protection for a set period.
Mutual fund: A mutual fund is a pool of money that is invested in stocks, bonds, and other securities.
Financial Dependents: Family members who rely on the policyholder’s income for their financial well-being.

FAQs

Absolutely! If you take a loan against your cash value life insurance, you must repay it on time. Failing to do this on time would mean that your beneficiaries will get a reduced sum as a mortality benefit of the policyholder.

Usually, a term plan is a pure protection plan that does not have any cash value. But if you sign up for a plan like iSelect Smart 360 term insurance by Canara HSBC Life Insurance, you get dual benefits of life coverage and return of premium.

Term insurance has no provision for returning any money invested. So, if you want to get back the premiums paid in case you outlive the policy, choose one that offers a return of premiums.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.