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Life Insurance

When Should You Exit A Life Insurance Policy You Don’t Need Anymore?

Have you felt at times that the life insurance policy you bought at the behest of the agent, is not suitable for your needs? Is it that often you end up buying a life insurance policy at the end of the financial year just to save more tax? And what is the result - you do save some tax, but also end up with a policy that you may not need.  The good news is that you need not be stuck with the policy through its entire course. 


Except for term plans, almost all insurance policies have some type of exit option that can be exercised at a cost. 


You can find the details below as to when and how you can exit from life insurance policies:


i. Exiting in the initial phase of the policy - The Free look period

As per IRDAI rules, all the policies have a free look period of 15 days from the date of receipt of the policy. 

Within this period, policy holders can return the policy to the insurance company and request for a premium return. He gets the refund after deduction towards proportionate risk premium for the period on cover, medical tests, stamp duty and service charges. These charges are not refunded. 


ii. Letting the policy lapse

The easiest way to exit a policy during the initial years is to let the policy lapse if you have missed the free look period. Stop paying your premiums and your policy lapses. You will not receive anything if the policy lapses and all your premiums would be lost. Exit options beyond the free look period are not offered by term plans.


iii. Exiting after two / three years

After completion of two / three years, insurance companies offer the following exit options : 

a. Surrendering the policy
b. Letting the policy become paid up


iv. Timing the market

After the lock-in-period of 5 years is over, then you can exit your ULIP policy (unit linked insurance plan). Your units will be redeemed at the prevailing NAV on the date of redemption. Before a 5 years lock-in-period if you stop paying the premium and convert the policy into paid-up then the existing fund value will be transferred to a discontinuance fund earning 3.5 % return only, so this option is not advisable. 

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