What happens when you default on your term insurance premium?

Term plans are a common and popular option for several investors' portfolios. Although maintaining a term insurance plan without any defaults is always advisable, there may be circumstances when you are not able to make the premium payment on time. Defaulting on a term plan can lead to several issues. Here's an outline of the consequences and a guide to avoiding such a situation. 

What happens if you default on premiums for a term insurance plan? 

Defaulting on a term insurance plan premium means that the policy will expire (lapse). This means that the policyholder will lose all the life coverage benefits and the total premiums they had paid until then. 

IRDAI (Insurance Regulatory and Development Authority of India) has stipulated a grace period starting from the date of payment for the insurance premium. This extension applies to life insurance plans of all types. In the tragic event of the policyholder passing away within this grace period, the insurance company will offer the full policy benefits to the policyholder's nominees per the policy's terms and conditions. 

What is this grace period? 

The grace period is the extension window during which you can make your premium payments in case you miss the due date. This is usually set at 30 days in case of policies with semi-annual, annual, and quarterly premium payments. On the other hand, this period may be 15 days for term plans with monthly premium payments. You can clear your dues and avoid a lapsed policy during this period. This is stated in your policy agreement, and you should carefully pay attention to the same. It is a good practice to use a term insurance premium calculator to determine the premium amount that you’ll be required to pay for your preferred plan before you buy it so that it is within your budget.           

How to revive a lapsed policy?

Suppose you still miss paying in the grace period, and your policy lapses as a result. There is no reason to panic. Some insurance companies let the policyholders revive their lapsed insurance policies. Here are the key pointers worth noting in this regard: 

• • Scrutinize the revival duration - Most insurers offer 2-3 years as a revival period from the conclusion of their grace periods for reviving policies. These details are provided in the policy document, along with the procedure that you should follow. Ensure that you stick to this period for reviving your policy. 
• • Submit your application - You should create and submit your revival application. The company may have its format for the same, and medical checkups may also be needed in some cases. Some insurers may insist on health declarations alongside. You should consult your insurance agent or visit the insurance company's branch to complete these formalities. 
• • Paying your due amount - To revive your policy, you should pay the due premiums for the entire duration since the policy has lapsed. The insurance company may also charge a penalty for not paying your premiums. The premiums for the revived policy will be the same as they were, whereas if you decide to purchase a new policy, your premium amounts may      be higher     . 
• • Terms and conditions - A revived policy is almost similar to a new insurance policy, but in some cases, the insurance company may set new terms and conditions. You should carefully check the same before signing on the dotted line. 

How to prevent policy lapses?

Here are some simple pointers to prevent the possibility of policy lapses. These include the following: 

1. Always make timely payments - Paying on the due date or before the same is the best possible method for avoiding any lapses in your policy. Remember that there is a grace period as well, given by the insurance company if you miss out on premium payments. 
2. Set up Automatic payments - You can set up an auto-payment option for your insurance premiums. You can give standing instructions (a mandate) to your bank for debiting the premium amount on a particular date every month or on the date that the premiums are due. This ensures that you never miss a premium payment and will not have to keep remembering the policy due date. 
3. Updating your contact information - The insurance company often dispatches emails, reminders, and messages about your payments. You should always update your contact details to get timely updates. 

If your policy expires due to some reason, make sure that you swiftly reinstate the same by completing all the formalities (including medical checkups if required) and paying all your due premiums with penalties. These steps will help you avoid policy lapses that can prove costly and leave you bereft of coverage suddenly. 

Disclaimer: This article is published in association with Excellent Publicity and not created by TNM Editorial.