Providing a grace period for life insurance premium payments is essential because a person may not always be in a situation to make payments on the exact date. If there were no grace period for term life insurance provided by the insurer, a single delay in payment could lead to a policy lapse. Such a situation would be detrimental for the policyholder, the insurer and the insurance industry in general.
Some delays maybe due to economic or policy changes such as demonetisation in 2016. In wake of the sudden cash crunch during that time, the Insurance Regulatory and Development Authority of India (IRDAI) had provided an additional grace period of 30 days for paying life insurance renewal premium. According to IRDAI regulations, grace period for term insurance and other life insurance products varies based on premium payment terms such as annual, half-yearly, quarterly or monthly.
What is grace period?
Grace period is the maximum number of extra days allowed by the insurance company to pay your life insurance renewal premium. Grace period varies according to the method of premium payment.
There are two methods of paying premiums for life insurance policies:
- Single premium where you make a one-time lump sum payment.
- Annual payments that can be divided into monthly, quarterly and half-yearly instalments as per insurer’s discretion.
If you make annual payments, the maximum grace period available for renewal is 30 days. However, if you make monthly payments, you are eligible for only 15 days of grace period. This is true for traditional life insurance products and term life insurance policies. However, for unit linked insurance plans (ULIPs) the grace period is 75 days during the 5-year lock-in period.
|Product||Payment Frequency||Grace Period|
|Term Life Insurance||Annual||30 days|
|Term Life Insurance||Half-Yearly||30 days|
|Term Life Insurance||Quarterly||30 days|
|Term Life Insurance||Monthly||15 days|
What happens after the grace period for term life insurance is over?
In case you don’t renew your term life insurance plan during the grace period, your policy lapses and your loved ones are left without financial protection in case of your death. A lapsed term insurance policy is a huge loss for the policyholder because he loses the entire premium he paid so far and the insurance coverage as well.
However, if the policyholder dies during the grace period, his family is eligible to receive death benefit after deduction of the unpaid premium. You should ensure that your term life insurance never lapses by following a few simple rules.
Should you buy a new plan or revive a lapsed term plan?
Most insurance companies give customers the options to revive their term insurance plan. The terms and conditions vary according to the policy guidelines of the insurer. You may also be required to undergo a medical test for reviving the policy. Generally, you have a timeframe of 2 years to revive your term insurance plan but you’ll have to shell out extra money in the form of revival fees, interest charges, penalty and costs of medical tests.
You should compare the costs of taking either of the two steps, i.e. policy revival or purchasing a new term plan. If you had bought the lapsed term insurance plan when you were 35 years of age and want to buy a new one at 45, it may cost you more. If you are still within the allowed 2-year period, add the costs of revival which includes your two-year premium, revival fees, interest, penalties and medical tests.
If you think that buying a new term life insurance plan makes sense, consider buying an online term plan as they are at least 25% cheaper than offline plans. Future Generali Flexi Online Term Plan is a good choice as it provides basic life cover as well as income protection to your family in your absence. The key benefits of online term plan such as the Future Generali Flexi Online Term Plan is longer protection (up to 75 years), higher sum assured and lower premiums for women, as well as a range of tax benefits.
There are times when insurance companies introduce schemes for reviving lapsed policy at attractive discounts; you should take advantage of such opportunities. However, the best way to keep your family protected is to never allow your term life insurance policy to lapse.