Kahlil Gibran, a Lebanese writer, once said, “Forgetfulness is a form of freedom”. While we believe this quote is a good fit in many scenarios in our lives, it may work the other way around regarding life insurance plans. You must pay the term policy premium on time when you purchase term insurance. In this article, we will look at the various repercussions if you cannot pay your term insurance premium payment term.
What time does a policy expire?
Any insurance you purchase requires a premium payment term, which must be made annually until the insurance’s term expires. Your insurance will be cancelled if, for whatever reason, you are unable to pay the premium due, even within the grace period offered by the insurer.
It also depends on a number of other things, the most significant of which is the kind of insurance policy you have. When a term insurance premium is not paid by the due date, the policy expires, and your insurance benefits and previously paid premiums are lost. If you fail to pay your ULIP (unit-linked insurance plan) payment during the lock-in period or the first five years, the policy is said to have lapsed. Your benefits are transferred to a discontinuance fund and are not paid until the lock-in time has passed.
All life insurance contracts must legally honor a grace period in India, often lasting 30 days from the payment due date, in accordance with the rules established by the Insurance Regulatory and Development Authority of India (IRDAI). The insured might not always be able to pay the premium by the due date, and insurance firms are aware of this. Due to this, practically all insurance policies include a grace period.
What Happens if You Fail to Pay Your Insurance Premium?
In term insurance plans, if you fail to pay the term plan premium before the due date, then it might result in the policy lapsing, which will forfeit your insurance benefits and the tips which you have paid so far.
However, in India, as per the rules and regulations set by the Insurance Regulatory and Development Authority of India (IRDAI), all life insurance policies are subjected to a grace period typical of 30 days from the due date of the premium payment term. Understandably, the policyholder may not always be able to pay premiums on time. Hence, insurance companies offer a grace period on insurance policies.
The policy will still be in force during the grace period. Therefore, if anything happens to the insured person during the grace period, the nominee would be eligible for death benefits. However, once the grace period ends, the policy lapses, and the nominee shall not receive any death benefit.
Reinstating a Lapsed term insurance policy
If we get a return on our investment, our joy knows no bounds. But unfortunately, this is human nature, leading to confusion between a term insurance policy and a money-back insurance plan.
If your term insurance plan has lapsed due to financial reasons, insurance companies offer you an option to renew your policy. You may be needed to do a medical check-up again and pay a penalty amount.
It is advisable not to delay your policy reinstatement, as the more you wait, the more penalty interest will grow. However, restoration is simple if you revive your policy within six months.
New v/s Old term insurance Plans
We must understand that the premiums for term plans increase with our age. It would be enticing to abandon your old policy and purchase a new one but consider the following example.
Ramesh purchased a term insurance plan at age 28, for which he pays ₹8000/annum and has coverage till age 70. However, he could produce a premium for only two years due to a financial emergency. So, at age 30, he now buys a new term plan where the premium payment term is ₹10,000/annum. In that case, Ramesh would have to pay ₹2000 extra for the new policy each year as he failed to pay the premium for his earlier policy, which would sum up to a considerable amount in the long run.
Hence, you should try your best to revive your old policy, which would charge you less. However, if reinstating the old approach is difficult, you can consider purchasing a new one.
What is the latest payment deadline?
You must honor a grace time, normally 30 days from the date issued, to pay the insurance cost, according to the Insurance Regulatory and Development Authority of India (IRDAI). For all life insurance policies, the 30-day extension is applicable. The insurance providers are aware that not everyone will pay their premiums on time or in full.
This delay is the result of numerous factors. The pandemic has also done severe damage to everyone’s finances. Therefore, there is a grace period for practically all insurance plans to enable policyholders to get through trying times without losing their coverage.
The full benefits of term insurance may be used in the event that the insured experiences any sort of loss within this grace period. However, grace period payments are more expensive than regular premium payments.
Online term insurance Plan from Kotak Life
A few primary reasons for failure to pay premiums are that individuals find the premium charges too high and the insurance renewal process extremely complicated. Instead, you can consider online purchasing term insurance from Kotak Life – the Kotak e-Term Plan, which, apart from offering cost-efficient term plans, offers multiple other benefits such as:
- High-level protection at a nominal cost
- Seamless policy purchase and renewal process
- Flexible premium payment term options
- Flexibility to convert between plans enhance your security with optional riders
- Preferential rates for females
Conclusion
Without term insurance, your family becomes financially vulnerable in your absence. Invest in a term insurance plan today to ensure a stress-free life for yourself and your loved ones.
