Will You Get Your Premium Back if You Exit Your Term Plan Early?

A term insurance plan is one of the simplest long-term solutions for the financial safety of your dependents. An adequate term life cover will ensure that your family can maintain their financial status even if something unfortunate happens.

However, pure term insurance plans seldom offer any survival benefit, a disadvantage that is only offset by the low cost of the cover. Therefore, you must opt for the variants that ensure how much of the premiums you will be able to save if you exit your term plan early.

Let’s understand all the cases in which you can expect a return of premium from your term plan.

Exiting a term insurance policy before it reaches maturity can raise questions about what happens to the premiums you have already paid. Since term insurance is primarily a protection tool and not a savings plan, most standard policies do not offer a refund if you decide to end the plan early. 

However, there are a few specific scenarios where a partial or full return of premium may be possible. They are as follows:

• Exiting During the Free-Look Period: If you cancel the policy within the initial free-look period, usually within 15 days of receiving the policy document, you may get your premiums back. The insurer may deduct minimal administrative charges, such as medical check-up fees or stamp duty, but the remaining amount is returned to you.

• Return of Premium Term Plans: These plans allow a lump sum return of your paid premiums if you complete the full term without any claims. This type of policy generally comes with a higher premium but offers peace of mind to policyholders who want to recover their investment.
• Refunds on Single or Limited Pay Options: Some plans with one-time or short-term payments may offer partial refunds based on the insurer’s terms.
• Special Exit Benefit Options: Policies with special exit benefits return all base premiums if you exit at a certain age or after a defined policy duration.

Can a Term Plan Return the Premium Cost?

The ultra-low premium cost of the term insurance cover is perhaps the best part of the plan, given the importance of financial safety for your family.

However, it also warrants the questions:

• Should financial protection cost you anything at all if you survive?

• What if you decide to leave the policy midway?

In traditional term plans, premiums are considered the price you pay for financial security. Once the policy ends without a claim, the premiums are not returned. These plans are pure protection tools and do not serve as savings or investment options. This can feel unrewarding to some policyholders, especially those who view insurance as both protection and an asset.

To address this concern, insurers now offer return-of-premium term plans. These plans are structured so that if the policyholder survives the entire term and makes no claims, the insurer refunds the total premium paid during the policy period. The return usually excludes charges such as taxes and rider premiums.

There are also plans with special exit value features. These allow the policyholder to exit the plan after a certain number of years and recover the base premium amount, provided specific conditions are met. It works best for those who seek a safety net but also want an option to recoup their funds.

So, yes, under specific plan types and terms, a term plan can return the premium cost. The key lies in selecting a plan that aligns with both your protective and financial goals.

When are Term Plan Premiums Returned?

Here are the special situations when your term insurance plan may return your premiums:

• Cancellation of Policy: Every life insurance policy has a cooling-off period of 15 days. The cooling-off period starts after you receive the policy document. You can check the policy terms and conditions, and may return the policy if you find the terms unsatisfactory.
  
  If you decide to return your term insurance policy within this cooling period, the insurer will return to you all the premiums you have paid. The returned amount will not include the expenses such as medical check-ups and underwriting costs.
  
  Although available with all the long-term life insurance plans, including term insurance, this option is seldom the cause of getting your premium back.
• Term Plan with Return of Premium Option: The term insurance plan’s nominal premium cost allows insurers to return the entire policy premium to you. Term plan with return of premium option offers the long-term life cover to you with one simple exception.
  
  If you survive the policy term and the life cover expires without a claim, you will receive the total premiums you had paid for the cover.
  
  Click to use: Term Insurance Calculator
• Exiting Term Insurance Plan Before Maturity: Another way you may exit your term insurance apart from expiry or claim is if you choose to exit the policy before maturity. A standard term insurance plan with regular premium payments usually does not offer any premium refunds.
  
  However, under the following situations, you can expect a refund of premiums after premature exit from your term insurance plan:
  1. Single-premium Term Plan: If you buy a single premium term insurance plan, you happen to pay the premium for the entire tenure in a single instalment. Thus, if you decide to exit the policy before the expiry of the term, the policy may return the additional premium.
  2. Term Plan with Special Exit Value: If your term insurance cover with regular premium payment has the feature of special exit value, the policy may return the premiums upon premature exit. Special exit value ensures that you receive all the premiums you have paid without a claim if you leave the policy.
     
     Term insurance plans like iSelect Smart360 Term Plan from Canara HSBC Life Insurance offer this option.

Special Exit Value in iSelect Smart360 Term Plan

Special exit value is a feature available with the regular payment option of the iSelect Smart360 Term Plan by Canara HSBC Life Insurance. Special exit value allows you to receive all the paid premiums back if you decide to leave the policy before its expiry. The returned amount will be exclusive of the following:

• Any additional premiums paid due to underwriting risk.

• Premiums paid for optional covers, i.e., riders in the policy.

Your policy should also meet certain criteria for you to avail of this benefit upon premature exit. A special exit value will be available if:

• You have attained the age of 65.

• The policy has completed at least 25 years if the total tenure was 40-44 years or 30 years for longer policy tenure..

This feature is available only for the regular pay term plan, where the maximum maturity age does not exceed 85 years. The policy will expire after the payout under this benefit.

What are the Mistakes to Avoid When Claiming Return on Premium?

One of the most common mistakes policyholders make is assuming they will automatically get their premiums back if they exit a term plan early. Many do not read the policy document in detail or fail to understand the type of term plan they have purchased. It is important to know whether the plan includes a return of premium feature or a special exit benefit. Without this clarity, an early exit may lead to financial loss and disappointment.

Another mistake is exiting a policy based on short-term money issues. Cancelling the plan to save on monthly costs can leave dependents without protection. A better option could be to reduce the cover or switch to a limited pay plan. Before taking any such step, it is always wise to speak to a financial advisor or the insurance company.

Exiting a policy early may also impact tax benefits. Premiums paid for term insurance are often eligible for deductions under applicable income tax rules. However, if the policy is cancelled within a short time, you may lose these benefits. Also, any payout received could become taxable depending on the reason for exit and the total benefit amount. 

Always check the terms to avoid unexpected tax consequences.

Conclusion

While exiting a term insurance policy early might seem like a financial choice, it needs careful thought and planning. Not all plans offer a refund on exit, and even if they do, it comes with conditions. The best way to avoid confusion is to choose a plan that suits your long-term needs. 

At Canara HSBC Life Insurance, we offer flexible term plans with smart features like return of premium and special exit options. These features help you remain financially protected while also giving you the option to receive your premiums back if the policy conditions are met. 

Explore their plans carefully before you decide. Your term plan is not just a policy. It is the promise of a secure tomorrow.