It is a common refrain that life insurance policies are never bought but sold. It means that most of these policies are bought by people without looking any options. Till recently most life insurance policies were bought for the wrong reason i.e. as a tax-saving instrument. As a result, there is a huge mismatch between what these policies were bought for and what were their requirements.
These complications do not stop here. Unlike other savings instruments, life insurance policies are long term investments. It’s difficult to wriggle out of them without taking a financial body blow. But taking a body blow may be better than a slow bleed which may cause by a wrong policy.

Says Aneesh Khanna, associate vice-president and head of products, Kotak Life: “Insurance policies are long term in nature. If one has made a poor choice, there is a 15-day ‘free-look’ during which the policy can be returned.” Some insurers offer to extend the free-look period from 15 days to one month. But it is effective only if you spot the lemon quick, which most people don’t and end up keeping it.
The easiest insurance policy to end is a term plan. It can be terminated any time by you, since it carries no money-back or return obligations. For other types of policies, which majority people have, there are three exit options available i.e. let the policy lapse, surrender it or make it paid-up which means continuing with the policy without having to pay premiums, the flip side being you will get a lesser money and cover at maturity. These options come into play after you have missed the free-look option to get out of the insurance plan. All three have their share of pros and cons. Says Pier-Paolo Dipaola, deputy CEO, SBI Life Insurance, “Understand the difference before exiting any participatory insurance plan as they work best only if you run them through their tenure.”

Terminating a policy before its maturity can occur income tax implications. For example, if a policy is terminated before the completion of three years you stand to lose on the tax exemption you enjoyed on the premiums paid earlier.
However, it will be wise to understand what you stand to lose monetarily when you opt out of insurance. Before coming to a decision figure out the paid-up value and surrender value on your policy. These are usually mentioned in the premium statements. If you decide to convert your policy to paid-up, be sure of the cover you are left with. If you decide to surrender your policy, calculate the premiums you have paid and the surrender value to get an idea of your losses.

Lastly, re-evaluate your future life insurance requirements and choose a policy that suits your age and financial profile, so that you do not repeat the mistakes you have committed when you took the first policy.