A term insurance plan is a life insurance policy which promises to pay a benefit if the insured dies during the chosen tenure of the policy. For instance, if you buy a term plan for 20 years and death occurs within these 20 years, the sum assured is paid under the plan. If, however, the term is over and the insured survives, there is, usually, no maturity benefit. So, if, after 20 years, the plan matures and you are alive, you do not get any maturity benefit. Term plans are important in the sense that they have very low premiums. As such, they allow you to opt for high levels of sum assured and create the promise of financial security for your family in case of your untimely demise. In fact, term insurance plan is the only avenue which provides financial security to your family members as they are assured of a benefit in case you are not around to provide for them.
Since term plans cover death during the tenure, it is advised to buy a plan with the longest possible coverage tenure. When you choose a longer tenure, the risk is covered for a longer duration and the probability of claim increases. Though long term coverage is prudent, it is also prone to discontinuation and policy lapse. Many of you tend to discontinue premium payments under the plan after some years as you don’t get any return. This results in the lapse of the policy and the coverage stops. Is it a wise move?
No, it isn’t. Renewing the plan regularly is important. Here are the reasons why –
To get continued coverage
When you pay the renewal premiums within the due date, you can continue the coverage of the plan for the stipulated tenure. A continued coverage ensures that the death benefit is paid if death occurs during the term of the plan. Thus, when the coverage continues, coverage for the risk of premature death also continues under the plan.
Term plans have no paid-up or surrender value
When you discontinue paying the premiums the policy lapses. A lapsed term insurance plan not only stops risk coverage, it does not even provide any paid-up benefit or surrender value. Term insurance plans are pure protection plans covering only the risk of premature death. That is why the premiums are bare minimum which covers the death risk. Since the premium of term plans has no saving element, the plan does not pay any paid-up value or surrender value when the premiums are discontinued. Once the plan lapses the risk cover ceases and all premiums that you had paid till discontinuation are forfeited by the insurance company. You get no benefit from discontinuation and so renewal of term plans makes more sense.
A continuous plan gives financial security
The whole purpose of buying a term insurance plan is to provide your family with financial security even in your absence. If the plan is not renewed regularly, the coverage stops and the promised financial security is no longer available. In case of death when the policy is in a lapsed state, no benefit is paid to your family. Thus, only on continuous renewal of the term plan can you provide your family with the sense of continued financial security.
You also get tax benefits
Renewing your term insurance coverage is also beneficial in saving tax. The premiums that you pay for the plan are allowed as a tax deduction under Section 80C up to INR 1.5 lakhs. Moreover, when the plan is renewed, the coverage continues and the death benefit paid is also tax-free under Section 10 (10D) of the Income Tax Act. Thus, continued term insurance coverage is tax saving too.
Given these benefits and the importance of renewals, renewing your term insurance policy on time is a must. While you buy a term plan for its benefits, the benefits would cease to exist if the plan is not renewed. So, make it a habit of paying the premiums within the due date for continued coverage. You can also place standing instructions on your bank account or create an ECS facility for paying the premiums automatically when they are due. This would reduce the chances of lapse and would provide you and your family with continued financial security throughout the term of the plan.
Read more Types of life insurance plans