Among the several insurance alternatives available, a term insurance policy is likely one of the most cost-effective solutions to provide financial security to your loved ones. When you choose term insurance products, your nominee becomes eligible to receive a death benefit if something unforeseeable happens to you, which can help them maintain a secure lifestyle.
Sometimes, term life insurance policyholders may be unable to pay their premiums on or before the policy’s expiration date. In these situations, Insurance companies provide the option of a grace period to assist such policyholders in retaining their term plan benefits and avoiding paying the late renewal penalty. The additional time the insurance provider gives to pay the premium is known as the grace period. But before we delve deeper into it, let us look at the various premium paying methods available to policyholders.
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Types Of Premiums
As we all know, term insurance premiums must be paid regularly by the insured. However, the frequency and type of premium payment depend on what the policyholder decides when purchasing the insurance. Before buying the policy, these premiums can be calculated using an online term insurance calculator. There are currently three main kinds of premium payment options available in India. Here is a quick summary:
- Regular Premium Payment – This is one of the most preferred methods for policyholders to pay their premiums. The policyholders must make regular premium payments during the policy’s term. For instance, if you choose the regular premium payment option and purchase a term insurance policy with a 10-year term, you will be required to make regular premium payments for the entire 10-year period. They may be paid monthly, quarterly, half-yearly, or annually.
- Limited Premium Payment – Here, unlike the first choice, the premium payment period is less than the policy tenure. This means you are not required to make payments for the entire policy term but only for a predecided premium payment tenure. Under limited premium payment, you have the same flexibility in the frequency of payments as the prior option.
- Single Premium Payment – As the name suggests, the single premium payment option only calls for one premium payment over the policy’s duration, usually at the time of buying the policy. Even without further premium payments, the policy will remain in effect until the conclusion of its term.
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What Is Grace Period?
Your term insurance policy will not be terminated immediately if you are unable to pay the premium by the due date. Instead, you will be given a grace period in which you can make the payment.
This grace period is approximately 15 days for monthly premium payments and around 30 days for annual or other premium payment frequencies. If you fail to pay the outstanding policy premium during this grace period, your term insurance policy will lapse, and all of the benefits the plan provides will be lost. In addition, any claims made under a canceled policy are invalid. The insurance provider denies these claims.
However, if the policyholder passes away during the grace period, his family would be entitled to the death benefit once the outstanding premium is deducted. Overall, it is advised that by paying premiums on time, one should avoid letting their term insurance policy terminate.
What Can You Do To Avoid This Situation?
As we have discussed, the primary reason for the lapse of a term life insurance policy is the nonpayment of premiums. Therefore, you must continue paying your term insurance premiums during the policy’s term to ensure that your family is financially protected. Here is how you can avoid the lapse of your policy:
- Make sure you pay your premiums on time
This should go without saying. A term insurance policy will never lapse as long as you pay all of your premiums on or before the due date.
- Set up Auto Pay
If you have problems making premium payments on time or remembering the due dates, you could set up an auto-pay facility with your bank. Setting up such a process is relatively straightforward, takes very little time, and can be done online in most situations through your net banking facility.
- Always keep your contact information up to date.
Always notify your insurer if your phone number, email address, or mailing address changes. This reduces the likelihood of missing premium payment reminders.
Conclusion – Is It Better To Revive A Lapsed Policy?
You are incorrect to believe that all is lost if you forget to pay the premium and your policy lapses. Most term life insurance providers give you the option to revive an old pre-existing policy. You can choose to reinstate a lapsed term life insurance policy, but first, compare the cost of doing so against simply purchasing a new term plan. The terms and conditions for reviving a lapsed policy will differ depending on your insurer. Term life insurance providers may offer you the opportunity to renew your policy at a reduced rate if doing so makes financial sense. However, reading the terms and conditions is vital to comprehend the product entirely.
