The Coronavirus (COVID-19) pandemic has taught us that life is uncertain. By now, you may have realized the importance of taking safety measures to ensure the financial security of your loved ones. One of the effective ways to do so is by purchasing a term life insurance policy.
The term plan meaning is a life policy that offers only a death benefit but no maturity payout. If an unfortunate event leads to the policyholder’s demise, the insurance provider pays a lump sum to the nominees. The money helps them maintain their standard of living. However, if you want to make sure that your dependents always remain protected, you must renew the policy timely. Failing to do so leads to consequences, such as loss of money and policy lapse.
Here, we explain the downsides of not renewing your term plan on time.
1. Puts your dependents in danger
When you buy term insurance in India, it ensures that your loved ones will remain financially stable when you are not there to take care of them. However, you must keep the policy active to make sure that your family members get its benefits. If you do not renew the term plan on time, the policy will lapse. In that case, your nominees will not get any lump sum when they need it the most.
2. Makes the policy more expensive
If you are young and healthy, it is possible to buy a term life insurance plan at an affordable price. It is because the insurer considers you a low-risk person, as you do not have any major illness during this stage of life, and you get policies at cost-effective rates. However, if you let the policy lapse and decide to buy it again, the scenario might change. If you are diagnosed with any critical illness during this time, the insurance provider will demand a higher premium or reject your application. However, if you are renewing the term plan, the insurance company cannot deny that. You can use a term insurance calculator to compare the costs of purchasing a new plan and renewing a policy to get a better idea about the difference.
3. Results in an extended waiting period
Term insurance policies come with a waiting tenure. The length of the waiting duration depends on your medical history and age. In some cases, the waiting period can be as long as four years. Hence, if your term policy lapses and you invest in a new plan, it puts your dependents at risk. So, make sure to renew your policy when required. By doing this, you eliminate the waiting period.
4. Requires new medical tests
When you are buying a term life insurance policy, the insurer asks you to undergo specific medical tests to determine your present health situation. They set the premium depending on the test’s result. So, letting your policy lapse is a bad idea. After that when you buy a new policy, you need to do more medical checkups, resulting in a higher price. Renewing term plans do not involve any medical test.
5. Leads to a loss in tax benefits
Section 80C of the Income Tax Act, 1961 allows you a tax deduction of up to INR 1.5 lakh yearly on the premium paid for your term plan. So, you can save a significant amount each year. Discontinuing the term plan will result in the loss of this tax exemption.
6. Results in missing the chance to continue the policy
Most insurers permit you to buy a new term policy until your age is 65. If you purchase a term plan with a tenure of 30 years or more, you can renew it on the due date to continue enjoying the protection even when you are over 65. Failing to do so will leave you with no life insurance plan.
It is a wise idea to use a term insurance calculator when buying a policy for the first time. It helps you find a suitable policy. Pay all the premiums at regular intervals so that your nominees can avail of the sum assured in the case of an unfortunate event.