What is a Life Insurance policy? A Life Insurance policy is a contract between an insurance policyholder and an insurer, where the insurer promises to pay a sum of money to the beneficiary when the insured person passes away or after a pre-determined period, in exchange for the premiums paid by the policyholder.
In a life insurance policy, you need to pay the life insurance premium for a specified policy term, and the life insurance company provides you with a comprehensive life cover in return. A life linsurance policy protects the future of your loved ones by paying a lump sum amount, calculated with the help of a life insurance calculator, referred to as death benefit, if an unfortunate event occurs for the insured policyholder. Some life insurance policies provide you with a Maturity Benefit after the end of the policy term as well.
Now, let us try and understand some of the basics of a life insurance policy:
- The grace period is defined as the period following the premium due date, during which the premium can be paid before the policy expires or lapses.
- Most insurers provide term policies that may be reactivated or reinstated within a certain time frame.
- The insurance can be extended, and the old benefits restored with payment of some penalty charges as calculated by the insurance provider.
- The Insurance plans are valid as long as the insured pays the agreed-upon payment.
What happens if the insured fails to make a payment for whatever reason? What steps may be taken to remedy the situation?
Continue reading to find out:
Grace Period Arrives Before Lapse
- Insurance companies recognise that the insured may not be able to pay the premium on time every time. A grace period is provided by almost every insurance policy.
- It is vital to remember that the insurance remains in effect throughout the grace period, and if the insured dies, the nominee will still be eligible for the benefits.
A Lapsed Policy
The life insurance policy is terminated if the insured does not pay the premium amount, even during the grace period. In this stage, the insured is no longer covered by the policy and is not entitled to any death benefits. But there is an escape route.
- Most insurance plans have a revival clause. If the insured decides to renew his or her expired policy, he or she can ‘revive’ it using it.
- There is a procedure that must be followed in order to reactivate the life insurance policy. To begin with, the insured must provide proof of continuous insurability; these papers differ from insurer to insurer and also depend on the period elapsed. Second, the insured must pay all past-due premiums, as well as the revival charges specified at the time of payment.
- Finally, if the insurance company deems it necessary, the insured may be required to undergo a medical check-up. After successfully completing these criteria, the insurance policy will be activated with all its original benefits.
New Policy vs Revived Policy
- Term insurance prices rise with age. For example, let’s say someone would have spent Rs. 12,000 in premiums if they purchased a term insurance policy, paid an annual life insurance premium of 6,000 for two years, and then let the policy expire.
- Let’s assume now that he wishes to renew his coverage after two years from the last premium payment. The insurance will charge him a renewal cost, a late fee, and interest on the past two years’ premiums. Assume that all of this amounts up to Rs. 20,000 in total.
- Alternatively, let’s say that the same someone (now 29 years old) may find new insurance coverage from another insurer for Rs. 8,000 per year. In this case, he would be losing the premiums he had previously paid for the previous coverage. Furthermore, he will have to pay Rs. 2,000 more each year than he would have paid in the previous arrangement.
- Remember that if the previous policy is renewed, the premium will normally remain the same, which can make a difference in the long run. Finally, the choice to renew or purchase new insurance is made on an individual basis, and the same can be easily calculated using a life insurance calculator.
- However, it is prudent to pay the premiums on a regular basis. Premium payments may be made in a variety of ways (both online and offline). The simplest way to ensure that your premiums are paid on time is to set up standing instructions (ECS) with your bank. Choosing an annual payment plan also alleviates the burden of remembering due dates.
- All the major Life Insurance providers in the country provide cheap term insurance with the option of reinstatement. So do your research properly and thoroughly so that you can make an informed decision.
Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.
Source link: https://www.hdfclife.com/insurance-knowledge-centre/about-life-insurance/what-happens-when-your-life-insurance-policy-lapses