Learn Why the Renewal of Term Insurance Policy is Equally Important

To mitigate the different risks in life and protect yourself and your family against financial pitfalls, you plan and take suitable steps, such as saving and investing your money in the right avenues. In this regard, life insurance plans a fruitful investment that aims to financially guard your family if you are not around to look out for them.

The ethos of a term insurance policy is to compensate your loved ones financially in case of your untimely demise during the term insurance plan tenure. However, if you do not pay your premiums on time, your term insurance policy will lapse, leaving your family with no financial security in your absence. Thus, when you buy term insurance, make sure to keep the policy active and renew it soon if it lapses due to any reason.

Significant implications of not renewing your term plan:

1. Defeats the primary purpose of insurance: You buy term insurance to create a financial security net for your loved ones in case of your demise. The term insurance plan pays out the sum assured as a benefit to your family in the event of your death. However, if you fail to pay the premiums for the term insurance policy and do not renew the plan on time, you forgot the financial security of your family.

2. Discontinuation of or reduction in term plan benefits: If your term insurance policy lapses due to non-payment of premiums, your family will not receive any death benefit or any additional benefits through riders. This means that all the previously paid policy premiums will be meaningless. Moreover, if you do not renew your term insurance plan within a stipulated time, the insurance company might ask you to pay interest to reinstate your term insurance policy.

3. Higher premiums for new term insurance plan: If you do not renew your term insurance plan on time, causing your policy to lapse, you may need to pay a higher premium if you buy term insurance later. Also, you will have to pay the late premium interest, which will further increase the total cost of your term plan. Moreover, when you renew the term insurance plan, your premiums remain the same as before. You incur no additional charges, and there is minimum documentation involved. However, if you buy term insurance fresh, you will pay a different and possibly, a higher premium than before, owing to changes in medical condition, age, etc. Additionally, the sum assured may also reduce if your income decreases.

4. Renewed waiting period: A new term plan with a critical illness benefit and other health insurance options can have a waiting period of three months to four years which can vary from disease to disease. The waiting period depends on your age and medical history. When you do not renew your term insurance plan on time, you have to start afresh.

5. No tax benefits: According to the Income Tax Act, 1961, term plans premiums are eligible for tax benefits of up to ₹1.5 lakhs under Section 80C. However, you can claim these benefits only when your term insurance policy is active. If your policy lapses before maturity because of non-payment of premiums, you cannot claim the tax benefits for the year as you have not paid the premium. This means your taxable income increases, and you have to pay higher taxes.

Conclusion

Apart from these drawbacks, the non-renewal of the term insurance plan causes other hassles. You have to undergo the medical tests again and also the KYC checks. This means that when you buy term insurance, you can expect it to take longer than a simple renewal of your term insurance policy. Hence, to save time, money and tax, renew your term insurance plan on time and keep the policy active.

Check the out the life insurance plans from PNB MetLife and create a reliable financial security net for your loved ones.