How and when to discontinue from Life Insurance?
Life insurance is a complex financial product. More often than not, one gets stuck by buying the wrong insurance policy and seeks a way out. However after buying life insurance policy, it is not easy to discontinue as it is a long term insurance product. There is free look period of 15 days when you can cancel the policy with just few nominal charges which get deducted as a part of medical tests, stamp duty etc.
The following exit strategies are provided based on life insurance products:
With the onset of many online term plans which are comparatively very cheap, many people want to discontinue their old term plans. However before discontinuing, it would be best to buy the new term plan as the cover should not break and there might be medicals involved which could take time. Once the new policy gets issued, you can cancel the earlier term insurance policy.
All ULIP’s have lock in period of 5 years. So if you cancel policy within 5 years from the commencement of policy, you will have to wait till the 5th year to get the fund value. There is no point cancelling unit linked insurance plan within 5 years as the cancelling charges along with other charges will reduce invested amount too much.
Exit a ULIP if you are near to mid policy term, charges are high and fund value is not getting much growth. If your ULIP is not performing due to higher charges, hold on to them for few more years till the fund value improves. Because most ULIPs charges drop over the policy term and stock markets could also improve in longer duration. Do not cancel ULIP if you are near to maturity as you might get loyalty additions.
If you have taken child plan, make sure there are safeguards for your children when you withdraw from the plan.
These plans are tricky. In traditional plans, you get surrender value after 3 years. The surrender value is equal to higher of special surrender value or guaranteed surrender value. In most traditional plans, the guaranteed surrender value is 30% of all base premiums paid barring first year premium. The special surrender value is declared from insurer from time to time. So if you can cancel traditional plan, you are entitled to higher of the surrender values among the two.
It is best to continue the traditional plan as cancelling traditional plan leads to the good loss of invested amount. If emergency amount is required, you can apply for loans against the policy after ascertaining the interest rate charged from the insurers. Loan facility is available with many insurers.
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