Buying the best life insurance plan is a wise and learned financial decision. However, when life gets stressed, it is very easy for an individual to forget about paying their life insurance premiums. A busy daily routine of life, unforeseen incidents, and changes in the level of income are some blockers to non-payments, of insurance premiums. But there are some consequences of not paying premiums on time.Read more
When you purchase any life insurance policy, you have to pay fixed amounts of premium continuously every year to the insurer until the tenure of insurance completes. If you stop paying premium amounts for any reason in the provided time, your plan will be terminated by the insurance company.
A number of parameters play an important role in the lapsing of the policy. The type of insurance product is an important factor to consider:
Term Insurance: In the case of a term insurance plan, if you don’t pay the premium amount on time to the insurer within the due date, then the plan will lapse. This lapsing of the plan will not provide any insurance benefits and the premium amount paid.
ULIP (Unit-Linked Insurance Plan): In the case of ULIP, if you fail to pay the premium amount in the 1st five years, then the plan will lapse while all the benefits will be transferred to a discontinuance fund.
As per IRDAI, the Insurance Regulatory and Development Authority of India, you have a grace period of 30 days from the date given to pay the premium. This grace time is provided by all life insurance policies.
In case something unfortunate happens to the policyholder during this grace time, all the benefits of the plan can be claimed. However, the grace time payments are higher than the regular payments of premium.
Now, if your plan lapsed, you might be thinking what will be the next step. Fortunately, there is a way to reinstate or restore the lapsed plan. This procedure differs from one company to another and depends on the type of plan you avail:
However, the restoration procedure can be complex with all the penalties you are required to pay. Additionally, you have to appear for different medical tests. Below components are generally required to restore/reinstate the lapsed plan:
At the time of commencement of the plan, you can find an application. This reinstatement form is requested to submit by every company. It is the original form so it should be filled with extra care.
All insurance companies ask you to submit the Continuous Proof of Insurability
Most insurers will require you to undergo medical tests to know your existing health conditions. These tests are performed to check if there are any changes.
The restoration time of your insurance plan depends on the tenure of your insurance plan lapse.
As we know, life insurance premiums increase with age. If you already have a good plan, it is always suggested to reinstate the plan instead of switching to a new policy. Let’s understand this with the help of an example:
If Kamal purchased a life insurance policy when he was 26, for which he has paid Rs. 8000 per annum. His plan got lapsed due to the non-payment of premiums within the grace period. Now, in order to reinstate the plan, he is required to pay around Rs. 25000 with all the fines involved. On the contrary, if he chooses to pay Rs. 10,000 pa, then these costs will be added in a long time. This is why reinstating plans is preferred.
However, you always have the option to opt-out of the insurance policy and select a new plan.
To avoid failure of premium payment, one should understand how to plan life insurance:
Insurance planning starts by researching the kind and type of coverage you need. A complete coverage plan is a right option for individuals having important financial resources as it generally comes with high premium rates. However, you also have the choice to purchase a minimum insurance cover plan. A minimum insurance coverage policy offers coverage for a tenure ranging from 5 years to 20 years, resulting in decreased monthly premium amount.
Select an automatic method of payment that pays your insurance premiums monthly on time. So you do not have to worry about forgetting the deadline for premium payment.
The insurer is responsible to pay for the losses of the policyholder as per the insurance plan. However, when the policyholder fails to pay the premium amount at a given time and then within the grace time, the insurance plan will terminate. Now, a policyholder can restore the insurance plan with late fees, renewal charges, penalties, etc. or they also have the option to buy a new insurance plan.
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