What are Your Exit Options for a Life Insurance Policy?

One cannot emphasize enough on the importance of diligent thinking for a life insurance policy before signing on the dotted line. However, people still end up with a policy that they don’t want, usually under the influence of a policy seller or because of wrong information.

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If you have bought a life insurance policy for yourself which you want to discontinue, then you needn’t worry. You have multiple exit options that you can consider. These are:

Option 1: Policy Lapse

A non-ideal yet simple and easy way to discontinue a life insurance policy is to stop paying its premium. However, the problem with this option is that you won’t get any premiums that you have paid for the policy, nor you will receive any other benefits if there is a money-back feature involved.

Option 2: Policy Surrender

This is the right way to terminate the policy. More than that, you also get cash value if you have paid premiums for more than three years. If the policy is less than 3-4 years old, then also you get about 30% of the premiums paid in the past.

Option 3: Paid-up Policy

By opting for a “paid-up” policy you can stop paying for the premiums and enjoy the policy benefits (although reduced) till policy maturity. So, if your policy term was 20 years with the assured sum of Rs. 10 lakhs, and you chose to convert your policy into “paid up” policy after 6 years, then the new sum assured will become 6/20 (years till premium has been paid/total term) i.e. 3 lakhs.

Note: Your policy can become eligible for “paid up” feature only after you have paid a certain number of premiums (usually 5 or more).

Out of the three options, only the last 2 have some benefit for you. However, it boils down to this- if you want immediate money then you can surrender your policy. However, if you are fine with reduced sum assured and don’t need money on an immediate basis, then you can grant your policy the “paid up” status.