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Surrendering Life Insurance

Surrendering Life Insurance

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Surrendering Life Insurance – Let This be Your Last Resort

Surrendering life insurance means quitting the Policy before it reaches maturity. Several reasons may prompt a Policyholder to surrender life insurance, such as financial urgency, mis-sold insurance, bad investment or availability of more lucrative sounding options, however, experts suggests surrendering life insurance is not something that you must do at a drop of a hat. Think several times and understand the repercussions before you opt to surrender your life insurance policy.

Reasons for Surrendering Life Insurance

When going through tough economic times, people are in need for cash besides they feel that Premium payment is a burden that they will no longer be able to bear, people feel compelled to surrender their insurance policy.

Many people are unhappy about their life insurance decision. They feel that their insurance advisor mis-sold them the policy i.e. they were not given what was promised to them or their insurance advisor did not make them fully understand the terms of the policy and they are now feeling cheated.

Some people feel they are stuck with a low-yielding life insurance policy. Every day they hear about new schemes and attractive policies making them feel that they should surrender their existing policy and invest in something more lucrative and promising.

Several insurance agents also keep advising people to surrender policy and invest the money in some new lucrative policy. One key reason why they do so is they get a hefty commission when someone signs a policy while the commission for renewal premium on your existing policy is quite low. So it is advisable to use your own Judgment and not blindly follow the advice of your insurance agent.

Implications of Surrendering Life Insurance Policy

There are several downsides of surrendering life insurance policies which financial planners do not discuss when they advocate surrendering policy through television or newspapers. Mentioned below are some of the implications you must keep in mind when you think of surrendering life insurance policy:

Once you surrender your policy, your life cover ceases to exist. So your family is at a financial Risk in case something happens to your life.

You stand to lose a lot of money, if you decide to surrender it mid-term. If you surrender the policy in early years, for instance, after three years of the policy initiation, the Surrender Value of life insurance policy might be just approximately 30 per cent of the premiums you may have paid till date. Besides, insurance companies do not count the premium paid for the first year when evaluating the surrender value of your policy.

Surrender value of life insurance policy is particularly low in case of unit-linked insurance plans (ULIP). Besides, if you surrender ULIPs in early years of the policy you particularly stand to lose a lot of money. This is because ULIPs are front-loaded. This means, a large portion of the premium you pay in the initial years of the policy are allocated towards agent’s commissions, charges while the remaining small portion goes towards your fund.

What is Life Insurance Cash Value

In life insurance policy, a portion of the premium is allocated towards the cash value of the policy. This cash is basically used to level out premium for the policyholder. Such policies come with a “surrender period” clause. This means, to get full cash value amount a policyholder must pass the stipulated length of time before he decides to surrender the policy mid-term. If you decide to surrender your life insurance policy, the life insurance company provides you the cash value, also known as surrender value. But if you surrender your policy before the Maturity period, you have to suffer a loss So it does not make any financial sense to surrender life insurance cash value insurance policy mid-term.

What is Life Insurance Cash Value

In life insurance policy, a portion of the premium is allocated towards the cash value of the policy. This cash is basically used to level out premium for the policyholder. Such policies come with a “surrender period” clause. This means, to get full cash value amount a policyholder must pass the stipulated length of time before he decides to surrender the policy mid-term. If you decide to surrender your life insurance policy, the life insurance company provides you the cash value, also known as surrender value. But if you surrender your policy before the Maturity period, you have to suffer a loss So it does not make any financial sense to surrender life insurance cash value insurance policy mid-term.