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Should You Surrender Term Insurance Plan When You Have No Liabilities?

dateKnowledge Centre Team dateAugust 02, 2021 views174 Views
Term Insurance Plan | Buy the Best Term Plan

In a term insurance plan, the life of the policyholder is covered until a specific time. The insurance company provides death benefits to the nominee under the term insurance plan if the policyholder dies within the term period. Financial security and life cover in partial or entire disabilities, critical illnesses, and tax benefits are some common advantages that come with term life insurance.

But in the case of zero liabilities, is it wise to surrender a term insurance plan? For some, it might seem to be the most reasonable option. But it's important to measure the pros and cons of this decision.

Should you surrender the term insurance plan?

Firstly, understand what type of plan you opt for? Pure term insurance plan does not offer a policy surrendering option. In addition, if the policyholder requires no death benefit, then one can go for surrendering the policy.

Terminating the plan can also affect your family in the future, as term insurance plans provide monthly income after the demise of the sole earner.

Surrender value

It is an amount the policyholder receives when they voluntarily withdraw from the insurance plan. The insurance company pays some amount to the insured. However, the surrender value varies according to the company's policy term.



According to India's Insurance Regulatory and Development Authority, a surrender value is fixed for the first seven years. This period is the time only after which one can surrender their term plan. Term insurance plans that include savings plans and investment plans and ULIPs are liable to surrender value. Sometimes, the surrender before maturity might also lead to a penalty.

Learn how to calculate the surrender value of life insurance policy.

4 Reasons to avoid surrendering your term insurance

A term insurance plan doesn't only bestow assurance but also several other advantages. It is usually not advisable to voluntarily surrender it. But even if you choose to do it, analyze the consequences beforehand.

1. Effect On future premium

The Premium paid by the insured increases as he/she ages. So, if you surrender a term life insurance policy once, buying another life insurance policy will be expensive. For instance, if a person buys term insurance at the age of 25 and the life cover is one crore for 30 years, then the Premium would be Rs.6,372.

But if the previous policy is terminated and another one is bought at the age of 30 years, then the Premium would increase as much as Rs.7,906. Moreover, if any medical conditions are indicated, later on, your cover might suffer.

2. No return on Premium

Term plans such as iSelect Star Term Plan by Canara HSBC Oriental Bank of Commerce Life Insurance provide an option of return on Premium after the expiry of the policy's tenure. If you surrender the plan, the policy will be terminated immediately, and you can lose this benefit.

3. Tax benefits

The tax benefits that come along with the term insurance plans will be missed out if one decides to withdraw it before the stipulated time as per the prevailing tax laws. Thus, no tax benefits shall be available on a discontinued policy.

4. Protection from medical ailments

Life is uncertain, and term insurance is the way to conserve your financial aspects. The policies are payable in terminal illness so that the unfortunate events don't drain you financially.

Alternatives to surrendering term insurance plan

Now that we have discussed the reasons not to surrender the term insurance, you might need to reconsider your decision. Here are some alternatives that you can go for rather than surrendering your life insurance plan.

1. Buy iSelect Star term insurance plan

iSelect Star Term Insurance plan is the way to go if you want to cover all the additional benefits and secure your family's financial future. It is a highly flexible plan and caters to the insured person's needs at all walks of life. Some basic features of the policy include:

A. Add your spouse in the same plan.

B. Multiple options for limited cover periods of 5-10 years and the payment option during the working years.

C. Options to increase the life cover on different life stages and requirements.

D. The insurance includes components such as Plan Option Life, Plan Option Life with Return of Premium, and Plan Option Life Plus.

The term policies provided in this plan include the full return of the Premium you pay within the policy term when the tenure ends. It means that if any ailment or deaths occurs before the maturity period, the total Premium paid will be repaid, thus terminating the term insurance plan. In addition, an Extended Cover Period can also be added to continue the plan post-maturity.

2. Reduce the term insurance plan

If you do not want to overburden yourself with repeated premiums, then this is a good option. In such plans, the cover amount reduces as the term maturity period comes near. It consists of lower premiums as compared to the other term policies.

Therefore, when you surrender a term life insurance policy, you lose the policy coverage. Also, the key motive of the term plans is to assist the dependants after the unforeseen death events. So, it is basically for the family's safeguarding. It is advisable to balance and think about the repercussions before surrendering your term plans.

The term insurance plans with additional benefits provided by the Canara HSBC Oriental Bank of Commerce Life Insurance come with affordable prices for life covers and benefit pay-outs to serve your needs.

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Frequently Asked Questions (FAQs) for Term Insurance Plans

A person can only purchase a term insurance plan till the age of 65 years, and they can choose the risk coverage for up to 99 years of age. One can easily buy the best online term plan between the age of 18 to 65 years.

This being a term insurance plan doesn't offer any payout after maturity or expiration date

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 65 years of age. This is a term plan with return of premium option – that means all the premiums paid throughout the tenure will be paid back to you if you outlive the policy.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly when you buy the best term plan in India.

If your key purpose is to give your Family financial protection, go for the best term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan. iSelect Star is a term plan with return of premium option. All the term insurance premium will be paid back to you, if you outlive the policy term.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, the best term insurance plan pays a part of the sum insured to treat your disease.

Term life insurance plan riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance plan riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term insurance policy remains active until the expiration date.
  • Income Rider: This rider in a term insurance plan ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term insurance plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while Buying the Best Term Insurance Plan?

  1. 1. Are you buying a term plan with return of premium?
  2. 2. Amount of premium you have to pay based on your age, habits, education, and monthly income
  3. 3. The total number of benefits covered in the term insurance plan. Do they include benefits that you care about the most?
  4. 4. How to save money on tax if you pay for the term life insurance plan?
  5. 5. Do they offer regular income options?
  6. 6. Can you change the coverage and premium in the future?
  7. 7. Does the claim consider valid if death occurs outside India?
  8. 8. Which kind of death is not covered by a term insurance plan?
  9. 9. Can NRIs take a term insurance plan? If yes, what are the conditions?
  10. 10. Does the term insurance plan have a cash value if you decide to cancel the term insurance policy?
  11. 11. Under what circumstances can a term insurance plan be cancelled?
  12. 12. Can I pay the premiums online or make electronic payments?
  13. 13. What will happen to the term life insurance plan if the life assured starts smoking after purchasing the policy?
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