Grace Period In Term Life Insurance Explained
Published On May 28, 2021 10:00 AM By InsuranceDekho
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All life insurance plans come with a grace period for premium payments if a person is not in a position to make payments on the exact date. If there was no grace period for the life insurance offered by the insurer, a single error in payment could lead to a policy lapse. Such a scenario will be harmful to the policyholder, the insurer and the insurance business.
Any delays may be due to economic or policy changes, such as demonetization in 2016. As a result of the unexpected cash crisis at that time, the Indian Insurance Regulatory and Development Authority (IRDAI) issued a grace period of 30 days to pay the life insurance renewal premium. According to the IRDAI Laws, the grace period for permanent insurance and other life insurance items depends on the basis of premium payout terms such as annual, half-yearly, quarterly or monthly.
What is Grace Period in Life Insurance?
The grace period is the maximum number of additional days required for the insurance provider to pay for the extension of your life insurance premium. The grace period varies according to the mode of payment of the premium.
There are two types of paying premiums on life insurance policies:
- Single premium that you make a one-time lump-sum charge.
- Annual premiums that may be split into weekly, quarterly and half-yearly instalments as per the discretion of the insurer.
If you make annual contributions, the maximum time period valid for renewal shall be 30 days. However, once you make recurring instalments, you are entitled for a grace period lasting just 15 days. This refers to alternative life insurance plans and term life insurance schemes. However, for unit-linked insurance policies (ULIPs), the grace period is 75 days over the 5-year lock-in period.
What Occurs When the Term Insurance Grace Period Gets Over?
In the event that you do not renew your life insurance contract within the grace time, your coverage lapses and your loved ones are left without financial cover in the event of your death. A lapsed term insurance contract is a major disappointment for the policyholder, as it loses the full premium he has invested to date and insurance benefits as well.
However, if the policyholder dies within the time period, his family shall be entitled to a death payout following withdrawal of the outstanding premium. You should guarantee that the life insurance policy never lapses by following a few basic guidelines.
Should You Restore A Lapsed Life Insurance Plan Or Buy a New One?
Almost all insurance providers in India encourage policyholders to restore their lapsed policy within two years of the expiration of the term insurance grace period. But the state of rebirth can vary from insurer to insurer. You will have to pay extra money, such as interest rates, fines, renewal fees, etc., to revive the scheme.Any insurers will also require you to conduct a diagnostic examination, and you must bear the costs out of your wallet.
So, if you are uncertain whether to revive the old policy or invest in a new one, it is advisable to compare the costs and decide accordingly.
There are times where insurance providers set up plans to revive a lapsed policy at lucrative discounts; you can take advantage of those benefits. However, the safest way to cover your family is never to allow your life insurance policy to expire.
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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.