Usually, there are no chances of getting your money back at any time or at the end of the term if you cancel your insurance policy. However, this is only possible if you have purchased a Return of Premium Term Life Insurance Policy.
What Happens if You Stop Paying Life Insurance Premiums?
Upon purchasing an insurance policy, the insured is liable to pay their premiums timely. However, sometimes due to a financial crunch or any unforeseen incident, the policyholder might fail to pay the life insurance premiums.
So, you must know what happens if you stop paying life insurance premiums. In most cases, the insurance policy lapses after the grace period are over, and the premiums aren’t paid yet.
What Are the Consequences if You Stop Paying Life Insurance Policy Premiums?
In simple words, when an individual buys an insurance plan, they must keep paying fixed amounts yearly to the insurance company up to the policy tenure. However, for any reason, if you stop paying life insurance premiums even after the grace period is over, the insurer has every right to terminate the policy.
Almost all insurance companies provide a grace period of 30 days to pay the premium after the due date. The IRDAI also specifies that if one pays their insurance premium within this grace period, their insurance policy will not lapse.
Discussed below are a few common insurance policies and their lapse terms and conditions:
1. Term InsuranceLike, in the case of term insurance, if the premium is not paid to the insurance company within the due date, then there is a high chance that the policy will lapse. It will also forfeit the premium amount paid till now, along with the insurance benefits.
2. Unit-Linked Insurance PlanIn ULIP insurance plans, if a policyholder fails to pay the insurance amount in the first five years, their policies will lapse. Also, all their benefits will be shifted to the discontinuance fund. Only after the lock-in period can this fund be accessed by you.
How to Avoid a Life Insurance Policy Lapse?
Paying premiums for an insurance policy is a full-time commitment and undoubtedly a significant part of your financial plan. But have you ever wondered what happens to an insurance policy when you stop paying? Well, it will lapse. Therefore, it is necessary to plan insurance payments to avoid policy lapse.
Check out these easy ways following which insured can protect their policies from lapsing:
1. Select the Appropriate Coverage Type That You Want
When it comes to insurance, the first thing that a policyholder needs to keep in check is to figure out what kind of coverage they need. The policy depends upon whether they need full coverage or a bare minimum of coverage.
As different insurance companies offer different coverage for specific plans, people opting for this always get confused with the minimum insurance coverage provided. This coverage is usually provided within 5 to 20 years and thus results in lower monthly costs.
So, one should always choose a plan that fits their current budget. This will help them in paying premiums before the due date arrives.
2. Select an Automated Payment SystemAn alternative way to avoid payment of premiums is to opt for an automated payment system. This will ensure you never miss any quarterly, monthly, yearly or half-year payments.
How to Reinsure or Reinstate an Old Life Insurance Policy?
If your life insurance policy has already lapsed and you want to reinstate it, always talk to your insurer. The process varies from insurer to insurer. It also depends upon the type of policy that one owns.
Even life insurance companies charge some penalties that the policyholder needs to pay, which makes this reinsuring policy process expensive. Also, whoever is planning to reinstate their old policy should consider these things:
- If customers plan to reinsure their lapsed old policies within six months after the lapse date, they need to contact their insurance providers and pay their pending premiums along with interest payable.
- On the other hand, if customers plan to reinsure their lapsed old policies after six months of the lapse date, they need to pay their overdue premium, penalty as well as interest.
What are the Requirements for Reinstating an Old Life Insurance Policy?
Apart from those mentioned above, other requirements for reinstating the insured policy exist. Here are some:
Reinstatement Application: At the time of policy inception, a reinstatement application must be submitted to the insurance company. The person who intends to reinstate their old policy must submit their application within the renewal period. This renewal period is usually 2-3 days after the grace period.
Proof of Insurability: For reinsuring the old policy, often, the insurance company asks for continuous insurability proof. The applicant must check with their insurance agent for more details on this insurability proof.
Medical Check-Ups: While reinsuring, the insurance company will again ask the applicant to undergo medical check-ups. This is done to evaluate their current health status and check whether there have been any changes since the original application.
Policy Lapse Time: Also, the reinsuring of your insurance policy is based upon the duration of the lapse of your insurance policy.
If the insurance policy is reinstated, then the terms and conditions of the lapsed policy will tend to continue.
Now that you know what happens if you stop paying life insurance premiums, always try to prevent it. Plan your finances accordingly to avoid future hassles.
FAQs About Life Insurance Policy Premium Payment
Only after three years of holding the life insurance policy a guaranteed surrender value is available. Usually, the surrender value is around 30% of the premiums you have paid, excluding the first year. If the policy is held for about 4 to 7 years, this value might go up to 50%.
By law, an insurance policy buyer has a minimum of 14 days cooling-off period. During this period, they can seamlessly cancel their policy for no reason at all. In the case of life insurance, the cooling-off period is usually 30 days.
Important Guides related to Life Insurance
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.