A fifty-five year old man is diagnosed with brain cancer and has to be admitted to the hospital. He had maintained a term policy for the last twenty five years, with regular quarterly parents.His family relocates to a new address for his treatment and his unfortunate demise occurs within a few weeks of the relocation. When his son makes an insurance claim, he finds that he has missed a notification from the bank, and the last premium for his father’s term insurance has gone unpaid.
In such a situation, the policy enters a grace period, which is like an interval between premium due date and lapse of policy. If there was no grace period, then a person unable to pay his premium due to sudden emergencies would find his coverage unfairly cancelled. It is for this reason that all insurance providers allow a grace period of 15 to 30 days.
Here are some important things you should keep in mind in this regard…
1. The sum assured remains unaffected even if the premium is not paid within the due date. Grace period is essentially an extension of your regular premium payment mode (monthly, quarterly, biannual or annual). Therefore, the policyholder is not penalized for premiums paid during the grace period.
2. Some deductions may be made. If the policy-holder dies within the grace period before the premium is paid, then the insurance provider will deduct the value of the premium from your death benefit. Keep in mind that this is not an additional fee paid. This is the amount which would have been paid by the policy-holder, eventually, to keep his plan active.
3. Grace period may vary based on payment mode and provider.It is usually 30 days for annual premium payment mode, but can be less for more frequent payment modes, such as 15 days for monthly premium. The provider will inform you before your due date, and also afterwards to inform you have now entered your grace period. Alternatively, you may reach out to your insurance agent for payment details.
4. You can make your claim during grace period, as you would during the main policy term. All relevant documents and forms should be used to make death claim during a grace period, as per regularnorms. As long as death occurs during grace period which begins the day after the due date, you are eligible for compensation.
5. Active cancellations do not come with grace periods. If you are changing your insurance provider, it is better not to cancel your previous insurance till the new plan is in place. If you cancel a plan, no compensation will be provided even if an unfortunate event takes place just one day later. So it is better to let the policy go into a grace period when your new plan is just about to come into effect.
The policy-holder from our example will be able to ensure death benefit, even if he passes away before paying the last premium. However, grace period is a limited time and it may not be enough for the policy-holder to make his payment, even if he is alive and well. To ensure consistent coverage it is better to switch to a more manageable mode of payment (monthly or quarterly) in case the policy holder is unable to pay annual premium due to financial constraints. The grace period is a facility provided by banks that ensures uninterrupted coverage in such cases.
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