Mr. Sharma, a working professional, purchased a term life insurance policy with adequate coverage. He diligently paid the premium for the first three years. However, a sudden medical emergency in the family disrupted his financial routine. Amid this chaos, he missed making a life insurance premium payment in the fourth year. Mr. Sharma thought he would pay it later without realising the consequences of missing the premium payment. Life can throw unexpected hurdles at times, especially when you are expecting it the least. This article explores the importance of timely payment of insurance premiums to keep the policy active and reap the benefits in a time of need.
Consequences of Missing a Premium Payment
Missing an insurance premium payment can catch even the most financially responsible individuals off-guard. Understanding the implications of such situations is essential to avoid complications. Most insurance policies provide a grace period to make premium payments, typically ranging from 15 to 30 days.
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Grace period meaning:
Grace period in an insurance policy is a specific time period after a premium due date during which policyholders who have missed premium payments are allowed to pay premium losing coverage. During this period, your policy remains active. However, failing to pay within the grace period may lead to further consequences.
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Policy Lapse
If you fail to make the payment within the due date or even after the grace period, your policy may lapse. This means the coverage will no longer be active, leaving you unprotected against potential risks. For example, if Mr. Sharma’s life insurance policy lapsed because of not making the premium payment in the fourth year, his dependent family member would lose the financial security intended in case of his untimely demise during the policy lapse.
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Loss of Benefits
If you fail to make the payment within the grace period and the policy lapses, the beneficiaries of the policy will not be paid the death benefits in case of untimely demise of the policyholder during the period. Missing premiums can also impact additional policy benefits, such as bonuses or riders. For instance, a lapsed life insurance policy may no longer cover critical illness benefits availed as an add-on with the policy.
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Reinstatement Challenges
After an insurance policy lapses, most insurers allow reinstatement within a specified period, usually up to two years. To do so, provide proof of insurance such as previous premium payment receipts along with a reinstatement request, if the policy offers the option of reinstatement. However, the policy can be reinstated with below conditions:
- Payment of overdue premiums along with applicable interest and penalty imposed, if any.
- Medical check-ups/re-evaluations or health declarations for insurers to learn about changes in medical condition. This might also lead to higher premiums if your health condition has changed.
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Forfeiture of Paid Premiums
Missing premium payments may lead to the forfeiture of previously paid premiums. However, this will depend on the policy type. For example, if you buy a pure-term plan, your earlier payments might not yield any returns after a lapse as many term plans do not come with a non-forfeiture clause.
Tips to Avoid Missing a Premium Payment
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Set Up Automated Payments for Premium Payment
Automating your premium payments ensures timely payment by eliminating the risk of forgetting premium due dates. You can automate the payment by linking your bank account or credit card for the entire premium payment term to avoid manual intervention.
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Choosing the Right Payment Modes for Your Premium Payment
Many insurance companies offer multiple payment frequencies (monthly, quarterly, half-yearly, or yearly). Choose a mode that aligns with your income cycle to avoid the risk of missing payments or to make payments more manageable.
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Set Aside an Emergency Fund for Premium Payment
Having an emergency fund can act as a buffer during financial disruptions. Mr. Sharma’s situation (mentioned in the beginning) could have been managed if he had a separate fund for such financial disruptions or contingencies.
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Use Payment Reminders
Leverage technology to set reminders on your smartphone or your system. Many insurance companies also send automated reminders, which you should keep an eye out for.
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Inform Your Insurance Company
Inform your insurance company if you foresee any financial difficulties in the future. Some insurance companies may provide options like temporarily suspending premiums or premium holidays under certain conditions.
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Regular Review of Insurance Policy
A periodic review of your insurance policy ensures you stay updated on its terms and conditions, including premium due dates. It also helps you align your coverage with your evolving insurance needs and financial situation. You can upgrade your policy or buy additional coverage after carefully comparing various policies on SecureNow.
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Budget for Insurance Premiums
It is important to consider premium as a non-negotiable expense in your monthly budget. Allocating a specific amount toward insurance can help you avoid the risk of missing premium payments and policy lapses.
Conclusion
To sum up, missing an insurance premium payment can have significant consequences. From temporary inconvenience to long-term financial setbacks, overlooking the responsibility of timely payment can responsibility can jeopardise the very protection insurance is meant to provide. However, some proactive measures like automating payments, setting reminders, periodic reviews, and maintaining a budget, can help you avoid such situations. Ensure to not compromise the efficacy of the insurance policy in an unforeseen event by missing out on premium payment.
Frequently Asked Questions (FAQs)
Will my coverage remain active during the grace period?
Yes, the insurance policy remains active during the grace period. Beneficiaries of the policy can still claim the death benefit in case of an unforeseen event during the grace period. However, the unpaid premium may be deducted from the payout.
Can I switch to a reduced premium or paid-up policy if I am unable to make premium payment?
Some insurers allow converting the policy to a paid-up status after a certain installment of premium payment. This mitigates the risk of policy lapse by reducing the coverage amount. However, this depends on the terms and conditions of the policy.
What if I miss a payment due to an unavoidable circumstance like a natural disaster?
Some insurance companies may offer flexibility or extensions in cases like natural disasters or any other unavoidable circumstances. Ensure to notify your insurance company within time.
