In today’s world, viewing life insurance solely as a tax-saving or investment tool can be a big mistake. In reality, it’s a financial shield that assures taking care of your family’s responsibilities even after you’re gone. Despite this, many policyholders unknowingly lose this protection due to failing to pay premiums on time.
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Common Reasons for Premium Defaults
A fast-paced life, temporary financial pressures, insufficient bank balance, or outdated mobile numbers and email addresses often lead to missed premium payments. Many people also mistakenly believe that their policy renews automatically, which is not the case.
What happens when the grace period ends?
When the premium is not paid by the due date, the insurance company provides a grace period. This period is usually 15 days for monthly premiums and 30 days for other payment modes. If the payment is not made within this period, the policy lapses, and any claims arising during that time will not be accepted.
Impact of Lapsing on Different Policies
In the case of term insurance, the entire life cover ends immediately upon lapse, and no money is returned. In savings-based policies, if the minimum premium has been paid, the policy becomes a reduced paid-up policy, where the insurance cover decreases, and bonus payments stop. In ULIPs, the fund value remains, but the investment and top-up facilities are suspended.
Option to Revive a Lapsed Policy
Most insurance companies offer the opportunity to revive a lapsed policy. This is usually possible for up to three years in ULIPs and five years in traditional policies. This requires paying the outstanding premiums along with interest. In some cases, a medical examination may also be required.
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Paying on Time is a Wise Decision
Reviving an old policy is cheaper than taking out a new one, as premiums become significantly more expensive with age. Regular payments not only maintain financial security but also provide peace of mind to the family.