When you buy life insurance, you get coverage for premiums you pay every year until the policy term ends. However, sometimes due to busy schedules, increasing responsibilities, and sudden expenses are some of the most common reasons the policyholder cannot pay the premium.
In terms of term insurance, if the policy is terminated, you will lose all the insurance benefits and the premiums paid. In the case of ULIPs, if you fail to pay the premium in the first 5 years of the lock-in period, your policy is terminated and the premiums paid are moved to a discontinuance fund which is returned only after the lock-in period.
What Is The Maximum Deadline For Paying a Premium?
As per IRDAI guidelines, the insurance company gives a grace period of 30 days after the last date of premium payment. The policy is active in the grace period. If something happens to the policyholder, the beneficiary can claim insurance during this period.
If You Can’t Pay The Premium
In case you are unable to pay the premium of the life insurance policy, here are a few things you can do:
Cash-out the Policy -
Check the terms and conditions of your policy and check with your insurer if you can cash out the premiums you have already paid. If the insurer allows you to cash out, you will no longer get any insurance benefit, and the cash out will be taxable depending on the amount you cash out.
Non-Forfeiture Options -
Some insurance companies offer the option of reduced paid-up if you are unable to continue the life insurance policy. Non-forfeiture option allows you to continue the policy with reduced benefits depending on your paid premiums. It means your policy is not terminated if you don’t pay the premium. The coverage is reduced according to the amount already paid.
Reinstate the Policy -
Whether the lapsed life insurance policy should be reinstated or not depends on the insurance company and the terms and conditions of the policy. Most insurance companies allow their customers to reinstate lapsed life insurance policy on payment of the penalty, late fees or renewal fees, depending on how late you are renewing the policy.
How to Reinstate Your Own Life Insurance Policy?
The insurance company will charge a penalty or renewal fee to reinstate your lapsed policy. You will be required to undergo all the medical tests again. Following are the requirements for reinstating the policy;
Reinstatement Application -
A reinstatement application needs to be submitted to the insurer. Ensure that the application is submitted within the renewal period, which is normally 2-3 years after the grace period.
Insurability Proof -
The insurance company asks for continuous insurability proof for reinstating the policy. Check with your insurance agent for more details on insurability proof.
Medical Checkups -
The insurance company will ask you to undergo medical checkups to check your current health status and to check if there have been any changes since the original application.
Remember that reinstating a policy is better than buying the new policy because if you buy the new policy, you will lose all the premiums paid to date. Also, premiums for the new policy may be higher than what you paid for the previous policy. Even insurance companies encourage their customers to reinstate their old lapsed policies.
It is very important to set reminders for the premium payment date so that you do not miss paying your policy premiums on time. If you cannot pay the premium, inform your insurance agent and find ways to continue your policy and get all the insurance benefits.