Life insurance is a product that you buy to ensure your loved ones never get into a financially sticky situation if you die unexpectedly. This is the primary reason why people buy life insurance, but another reason is also an investment. People buy various types of life insurance plans to safely invest their money to pay for their future financial goals or to set up retirement funds. Life insurance does come in handy in most situations, but at times, a cover may become redundant. At such a time, it is a good idea to reevaluate your life insurance plan and see whether you actually need the coverage or not.
There may be an instance in which you won't be needing the life cover anymore and at that time you can go ahead and terminate the policy. Here are some reasons that can happen:
- You don't have dependents any longer -
Most people buy life insurance to secure the financial well being of their dependents like their parents and kids. But if your parents have passed away or your kids have grown up and become financially independent, you do not need to maintain the life cover anymore in their interest. You can terminate the policy and make better use of the funds.
Pro Tip: It is always a good idea to continue your life insurance coverage as taking another one at a higher age would be super expensive. So before you terminate your existing plan, think twice!! - You have cleared your debt -
Term insurance plans are commonly purchased to secure loans and large debts. If you have cleared all your loans and mortgages, consider terminating the life insurance plan with which you covered the debt. You may not get any money back in return, but you will be able to stop the premium payments which can be a financial burden at times.
Pro Tip: Yes, a term plan or any other loan protect insurance plan must end with the loan, you need to make a decision with a pinch of salt. If your liabilities have actually gone down, yes go ahead and close the insurance policy. But do it only after evaluating carefully. - You have met your financial goals -
As mentioned above, certain types of life insurance plans help you to save money for your future financial milestones. These include paying for your child’s higher education, to buy a house, to secure your retirement, to start a business, etc. If you have already achieved these financial milestones, you can stop investing in your life plan any longer. Take the money out of the life insurance plan and invest it where you will get better returns.
Pro Tip: Life is all about your financial goals and systematically planning to achieve the same. So, if one goal is over, life is not over with it. You might have another financial goal just around the corner. - You are capable of funding your retirement -
Suneel had bought a retirement life insurance plan 20 years ago when he was working as a clerk in a factory. However, 10 years ago, he set up a canteen along with his wife and today that has transformed into a big restaurant and has made Suneel a very rich man. With his business thriving, he took a VRS at the age of 50 and is a full-time entrepreneur now. He also terminated his retirement life insurance plan, as he has a fixed source of income and also enough savings to last him a lifetime. If you also have a way in which you can take care of your retirement costs, do consider terminating the retirement plan you may have.
Pro Tip: Retirement expenses do go up with lifestyle and it might make a lot of sense keeping your retirement plan despite your business and other cash flow. Weigh the pros and cons very carefully as most people are underinsured in India. Also, retirement plans are usually annuity and there is any life insurance coverage associated with the same. - Term insurance plans might replace other plans
Sometimes you might opt for a term insurance plan at a later point of time, and then choose to terminate your other, more expensive life insurance plans, and that could be justifiable.
Pro Tip: If you have adequate insurance coverage from other types of insurance plans, you might feel the older and more expensive plans to be unnecessary. However, make sure you do have your adequate insurance coverage.
If you find yourself in any such situation, consider terminating your existing life insurance plan.
What to do After You Terminate the Life Plan?
So what happens after you terminate your life insurance plan? Let’s find out:
- Saving money -
If you have a term insurance plan, you won't get anything in return. So basically, you will just get freed of the premium liability. You can then invest the premium amount in an investment plan or put it in your retirement fund to ensure your money is not wasted or doesn't lie idle in a bank account. - Reinvesting -
If you have recently terminated an endowment plan or whole life plan, you surely have received a surrender amount. This may be a lump sum amount that you can put to good use. Consider investing the money in funds that can help you in your current life situation. For instance, if you want to buy a house, use the amount as the down payment. Else, invest it in your retirement fund so that you remain financially stable for as long as you live. - Buy health insurance -
Health insurance is a very important thing to have. If you do not have a good health cover, or you only depend on the company group policy, make use of the surrender value from your life cover to buy a good health insurance plan and keep yourself protected. - Spend it -
And finally, you always have the option of spending the money on yourself. If you have always dreamed of going on a world tour, or buying a luxury watch, consider spending your life insurance money on that. This, of course, should be done only if you have taken care of all your other financial commitments. You have worked hard to earn this money and so you must reward yourself!
The Final Word
Analyse your life insurance needs to see whether or not you still require the life insurance plan you have. Life insurance requirements do change from time to time and you must weigh the pros and cons on a regular basis. You need to be adequately insured. However, the decision is completely yours and you need to take it appropriately.
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