The risks of cancelling your life insurance
So, you’re thinking of cancelling your life insurance policy? While all your reasons to do so may be valid, such as opting to prioritize other expenses like rising school fees, which are putting many families under great financial pressure. Before you do, here are some points that will help you understand why you should think twice before terminating your life insurance policy.
1. You risk leaving your family with debt
Ever wonder what happens to one’s debts when they pass away? The idea that a person’s debts pass away along with their death is a big misconception. When you have passed away your family (which usually inherits your estate) will have to pay off any debts you may have had. Should you have any assets, such as your house, that would be utilised to pay off your debts. However, if you had invested in a life insurance policy, the payout made by the insurance company to your beneficiaries would be valuable at the time of your passing. Not only can it be used to pay off your debts but the rest can be used to provide your family with financial assistance.
2. The rate of premiums tend to increase with your age
If you decide to terminate your policy at your current age, and then decide to re-apply for it at a later stage in life, one thing that would have changed is your age. And due to the fact that the rate of premiums increase with a person’s age, your policy would have become more expensive depending on how old you are. So if you cancel your life insurance in your twenties, for example, expecting to get the same benefits when you re-apply in your late thirties, while you would be likely to get the same benefits, this time you would have to pay a higher premium.
3. Your risk profile may change
Your risk profile may change if you have moved to a job where there is a higher risk involved. This is due to the fact that if you work in a corporate environment, the insurance company assumes that you have a permanent job with a safe working atmosphere, which lowers your risk factor. If you have, however, changed your work and are employed at a construction company when you re-apply for a policy; due to the fact that your new job may involve spending several hours outside working on building projects, where the risk of getting injured increases, you would have become a person of higher risk to provide insurance for, and thus you would probably pay a higher premium.
At the end of the day, whether to cancel or keep a life insurance policy is a personal decision. Financial experts, however, strongly recommend that you look for another option instead of cancelling your life insurance policy, due to the fact that if you do terminate it you could be the one at a loss. If you can’t afford the premium, the concerned insurer may be able to offer you a more affordable alternative. Always remember why you took up a life insurance policy in the first place.