Ways to Terminate Life Insurance Plans

There can be many reasons why buyers can decide to terminate their Life insurance policy. In case you bought a policy that do not suit your needs, or you decide to re-invest in a different plan, you should know that the policies come with an exit option that can be exercised any time during the tenure.

Following are the ways by which you can exit the policy by cancelling it.

1. Free-look period is the earliest option provided by the insurance company for the buyer to exit the policy. Free-look period is for 15 days when the policy holder can choose to cancel the policy if he/she is dissatisfied with the terms and conditions provided by the company. The premium paid at the time of buying the policy is returned to the policy holder after deducting for charges like medical test, stamp duty and service charges.

2. The next earliest option to exit a life insurance policy if you have missed out on the free-look period is, to let the policy to lapse. For the insurance policy to lapse, all one needs to do is to stop paying premiums for the next 3 years. However, the policy holder should understand that if you stop paying the premium, you will not receive the benefits that are offered by the policy and the premium already paid by the insured will be lost.

1. If you have completed the 3-year tenure, and then decide to exit the policy, then the next option is to let the policy become paid up. You can convert the traditional endowment plan into paid-up policy. By doing this, you can ensure that the policy does not lapse but it continues to provide cover with a reduced sum assured. This reduced amount that is assured is known as the paid-up value. Once you have changed the policy to a paid-up policy, the future dividends, bonuses, and other add-on benefits attached to the policy are lost.
2. Surrendering the policy is termination of the plan voluntarily before its date of maturity. When the policy is surrendered by the insurer, a lump sum is paid back to the insured as surrender value or cash value. The policy holder acquires the surrender value provided he has continuously paid the premium for three years. The cumulative premium amount is paid to the policy holder on surrender of the policy.

It is not always advisable to terminate a life insurance policy, especially towards the maturity. Remember that, when you are taking a new policy, you have to go through underwriting again, as you will lose the benefits when you took the policy while the rates were lower, and you were younger and healthier. If you have decided to re-invest your money in a different investment policy, then make sure that the new policy offers higher returns and covers up for the losses incurred during cancellation of the policy.

Term Insurance can be considered as the cheapest form of insurance that can take care of the liabilities and responsibilities in case of your sudden demise.