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Your exit options are simple, but would have to be weighed against factors such as Maturity amount, Surrender Value and insurance coverage.
If you have decided to exit from life insurance for any reason, you need to have some information related to the exit decision of your life insurance policy, such as what the surrender value might be and what would happen to your maturity amount. Let’s take a brief look at exit options in the case of traditional insurance and see what the implications could be in terms of surrender value and maturity amount.
Endowment policies, cash back policies and whole life policies are normally referred to as traditional policies and there are considerations unique to them that you need to take into account when you surrender life insurance. Insurance companies would normally have provisions for what is called the ‘free-look period’, the initial 15 days or in some cases, 30 days, where you would be free to return your insurance policy with no charges incurred. While this would not have any impact on the maturity amount or the surrender value, the fact is that this would be too short a period for you to make any decision based on experience with the product.
If your decision to exit from life insurance comes after the free look period, you have certain options at hand:
When you surrender life insurance, you would have to see what the surrender value would be in proportion to the maturity amount. The surrender value is the value that you would receive if you decided to surrender life insurance before its maturity period. The surrender value is paid by the insurance company when you discontinue the policy.
The surrender value is calculated based on the period for which you have been staying with the policy, in comparison with the actual duration of the policy, leading to the maturity amount. The surrender value would include a portion of premiums that you have paid, along with accrued bonuses that have been declared by the company. However, when you surrender life insurance, you need to know that there is a minimum lock-in period of three years where you would not be able to surrender life insurance. And if you do, it would have to be at the cost of the premiums that have been paid.
The point to note is that surrender value increases and gets closer to the maturity amount as you stay on with the policy for longer, closer to the maturity date.
If you do not want to surrender life insurance, you could make your life insurance policy paid up. This way, you would enjoy continued Coverage of the policy even after you stop paying premiums; however, there would be reflections in terms of the maturity amount. You would also have reduced insurance cover, leading to the maturity amount at the maturity date. The reduced cover is referred to as the paid up value.
In this case, you would have to wait till the maturity period to get your money, unlike in the case of surrender value which you could get immediately after you surrender life insurance.
The third option is the easiest but the least attractive. When you simply stop paying premiums, you would make your policy lapse, which means that you would not get any of your premiums back and you would also lose your insurance coverage. And it could also reflect on your ability to go for future life insurance.
In all of these cases, you need to see how your maturity value would fare and how well covered you would be, before you make the ultimate decision to surrender life insurance, make it paid up or let your policy lapse.