Know The Importance of Renewing Your Term Insurance Plan
Why do you need a term insurance policy?
The importance of a term plan is well known. The policy helps in fulfilling your family’s financial goals even when you are not around. A term insurance policy, being a pure protection policy, offers a financial assistance in your absence. This assistance ensures that the income that a family loses on the death of the breadwinner is compensated by the term insurance plan.
Term life insurance plans usually pay the death benefit if the life insured dies during the policy tenure. That is why it is always recommended that you opt for the maximum possible tenure when buying term insurance. But can you enjoy uninterrupted coverage without paying the premiums when they are due?
No, you can’t. Regular term insurance renewal is essential for non-stop coverage.
What is renewal of term insurance?
In simple terms, renewing a term plan means to pay the second and subsequent premiums as and when they are due. For example, if you buy a term plan for 25 years and choose to pay the premium every year, renewing the policy would mean paying the premium for the second year and every year thereafter to continue the coverage.
Term plans offer the regular, limited or single premium payment options. Under the single premium policy, you pay the premium in lump sum at the start. However, in regular and limited premium policies, the premium has to be paid for multiple years. Every time you pay the subsequent premium, you are said to renew the policy.
Why is renewing a term plan important?
Renewing a term life insurance policy is important for one primary reason – to get continuous coverage. So, let’s take a look at the reasons why you should renew your term insurance policy every time –
- Lapse = loss of coverage
It is a simple equation. If you do not renew the policy on time, it lapses. Lapse means that the coverage comes to an end. In the case of death after the policy has lapsed, no death benefit would be paid. Would you want that?
When you renew the policy by paying the due premiums, the coverage continues uninterrupted. The promised death benefit is paid whenever death occurs and so, renewing is essential.
- You lose out on the premiums already paid
Under most term life insurance policies, there is no concept of a paid-up value or a surrender benefit. If you stop paying the premiums and do not renew the plan, the premiums that you paid earlier would be forfeited by the insurance company. As such, you would not get any benefit for the premium that you have already paid. Can you afford that?
So, rather than losing out on the premium, renew your policy and get the coverage benefit for the premiums that you are paying.
Insurability – Why take a chance
When you bought the term plan, your age was lower and your health conditions were good.
As your age, the premiums for a term plan increase. Your health might have deteriorated. Thus, you either pay extra premium as rating up due to health problems or you become uninsurable.
It is thus advisable to continue with your existing term insurance plan.
- Non-renewal = no financial security
Reiterating the first question, why do you buy a term life insurance policy? Isn’t it for financial security?
A term life insurance policy can provide financial security only if it continues undisturbed throughout the chosen tenure. To do that, you are required to renew the policy continuously by paying the renewal premium. If you don’t renew, the coverage would lapse and so would the promise of financial security. Would you want your family to be left financially vulnerable if you are not around?
Term insurance renewal guarantees financial security and, thus, becomes important.
- You lose out on the tax benefits too
Every time you renew your term insurance policy and pay the premium, you stand to earn a deduction on your taxable income. The premium is a deductible expense under Section 80C which allows a deduction of up to Rs.1.5 lakhs. When you don’t renew, you don’t pay the premium and you lose out on the deduction available under Section 80C. Your tax liability might, thus, increase and you might end up paying a higher amount.
Convinced about the importance of renewing your term plan?
Term life insurance plans are long-term policies which offer unparalleled financial protection. To ensure that a term plan delivers its benefits, regular renewals are necessary.
Insurance companies offer a grace period so that you can pay the outstanding premium if you miss premium payment by the due date. Make sure to pay off the premium within the grace period to avoid a lapse. If, however, the policy does lapse or has lapsed, you can revive it too. Insurers offer a period of up to 5 years for the revival of lapsed policies. Choose to revive the policy to reinstate the coverage and then renew it without fail.
To sum it up, understand the meaning and importance of renewing a term life insurance policy and then renew your policy on every due date. If forgetfulness is a concern, opt for the auto-debit facility or place a Standing Instruction on your bank account to debit the premium as and when it falls due. This would ensure automated renewals so that you can enjoy the full potential of your policy.
AN Feb 35/22