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Life Insurance plans are considered one of the most important financial products for everyone to have in their financial portfolio. These plans not only offer financial protection to your loved ones in the event of your unfortunate demise but also offer wealth creation benefits in the long run. To keep the plan and its benefit active, it is important to pay the premiums, but what happens if you stop paying life insurance premiums.
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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 is completed. If you stop paying premiums during the premium payment period for any reason, your plan will be terminated by the insurance company also called lapse of life insurance policy.
When a life insurance policy lapses, the various types of life insurance policies have different impacts, such as:
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 grace period of the policy will begin. If for some reason, you fail to make the premium payment event before the end of the grace period, then the policy will lapse and no benefits will be offered.
ULIP (Unit-Linked Insurance Plan): In the case of ULIP, if you fail to pay the premium amount before the end of the grace period, within the first 3 years, then the plan will lapse while all the benefits will be transferred to a discontinuance fund. Along with that, the life cover and add-on rider benefits will no longer be applicable.
Note: Know what is term life policy first and then buy a term plan for your loved ones.
Note: It is suggested to calculate the term plan premium on the term plan calculator online tool by Policybazaar before buying.
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.
Term Plans
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 life insurance plan depends on the tenure of your insurance plan lapse.
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As we know, life insurance premiums increase with age. If you already have a good plan, it is always suggested to reinstate the previous life insurance 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, it is better to check the premiums and benefits offered by both the old plan and the new policy to see which plan offers better coverage at suitable premiums.
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.
An active life insurance policy is essential for the continued protection of the family, and to ensure continued benefits of the plan, regular premium payments are important. If the policyholder fails to make the required premium payments within the due time, the policy will lapse and will no longer cover the policyholder in case of an eventuality.
Note: Check out the best term insurance policy in India and choose one that suits your requirements.
Note: You should also check the benefits of term insurance if you are planning to purchase the term insurance plan.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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