The primary benefit of life insurance is financial. The beneficiaries receive a lump-sum payout in the event of the policyholder’s unfortunate passing. It provides peace of mind in unexpected situations.
However, if you ever forget or miss a premium payment, it does not mean that your policy will become invalid immediately. In fact, many policyholders think the same and purchase a new policy in such situations.
Therefore, awareness of the non forfeiture clause is very important. It helps ensure you get some benefit from your life insurance plan even if it lapses. Let’s understand this clause better and how it benefits life insurance policyholders.
Key Takeaways
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Life brings many twists and turns, and sometimes paying a premium exactly on time becomes difficult. The following situations are a few common ones when you might miss a life insurance premium:
Temporary income changes during job transitions or business slowdowns can make it hard to keep up with premium payments
Health issues or travel plans may lead to missed reminders and delayed payments
Family responsibilities, such as education costs, weddings, or medical expenses, can take financial priority for a while
Relocation or address changes might result in missed policy notifications or due-date alerts
Limited understanding of policy terms may cause confusion about payment timelines or grace periods
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Life insurance plans lapse when premium payments are not made within the allowed timeframe. Once a policy lapses, coverage and benefits are temporarily suspended until it is revived. The following situations can lead to a lapse in policy:
Missed premium payments beyond the due date and grace period cause the policy to become inactive
Unawareness of renewal timelines can lead to delayed payments, especially if reminders go unnoticed
Changes in income or employment may interrupt regular premium payments for a certain period
Banking or auto-debit issues sometimes result in unprocessed transactions without the policyholder realising it
Neglecting communication updates, such as phone numbers or addresses, can prevent receiving renewal notices
Yes, life insurance plans can be saved after a policy lapse through the non-forfeiture clause. This clause enables you to retain certain benefits, such as a reduced paid-up value or surrender value. In fact, this also ensures that the policy continues to provide some protection even after premium payments cease
A non-forfeiture clause is a built-in feature of certain life insurance policies that ensures that your policy retains some value even if premium payments stop after a minimum period. Rather than full termination on missed premiums, the clause helps preserve benefits in reduced form.
Such clauses are more common in traditional endowment and whole life plans than in pure term plans. They safeguard the policyholder’s investment and the protection cover, offering peace of mind in uncertain times.
This clause offers several benefits that extend beyond contractual fine print, especially in a country like India, where finances can fluctuate. The non-forfeiture clause benefits in the following ways:
Prevents total loss of benefits when you miss payments temporarily
Keeps life coverage active in some form, protecting your family’s future
Builds trust and encourages policyholders to stay invested in their plan
Offers a backup in times of hardship without letting your earlier premiums go to waste
The mechanism of a non-forfeiture clause involves several steps and conditions that must be met to activate the benefit. Here’s how this clause works:
The policy must have completed the minimum number of premium payments (commonly two or three years)
You stop paying the premiums thereafter
Instead of the policy lapsing immediately, the insurer converts it to a paid-up status or offers a surrender value, depending on the terms
The sum assured may reduce, or the term may shorten, but the protection stays active
It ensures that your earlier premiums continue contributing to protection rather than being wasted
Under Section 45 of the Insurance Act, a life policy cannot be questioned after three years from issue, revival, or rider addition
Source: lawarticle
When life insurance plans lapse due to unpaid premiums, the non-forfeiture clause ensures that the policyholder does not lose all benefits. Instead, the policy continues in a modified form depending on the payout option selected or available within the plan.
Here are the common payout options under the non-forfeiture clause:
The non-forfeiture clause serves diverse lifestyles effectively. Here’s how this clause benefits different types of policyholders:
For working professionals facing job transitions, the clause provides breathing room to resume payments
For retirees with unpredictable expenses, it safeguards protection even during budget tightness
For NRIs managing funds across countries, it adds flexibility and peace in premium payments
For families juggling multiple financial goals, it keeps life cover intact despite short-term disruptions
Ensuring the presence of a non-forfeiture clause in your life insurance plan takes a few proactive steps. This awareness puts you in control of your policy’s safety net.
Read your policy bond and benefit illustration carefully before purchase
Ask your advisor whether the plan offers paid-up, surrender value, or extended term options
Keep premiums paid for the minimum required number of years to activate the clause
Use the insurer’s online portal to check accrued value and policy status
Keep contact details updated with the insurer so you receive notices in time
At Canara HSBC Life Insurance, the policy lapse and reinstatement process is clearly defined and customer-friendly. We offer a 30-day grace period for annual premium payments and a 15-day grace period for monthly installments. If you pay within this grace period, your policy remains active with no interruption.
In case of non-payment after the grace period, the policy may lapse. We do allow reinstatement within a specific limit after lapse by accepting the payment of the outstanding premiums. However, it is along with any applicable late fees and the submission of a health declaration. The non-forfeiture clause works alongside these provisions to protect your interests and keep your plan meaningful even during payment gaps.
The non-forfeiture clause may seem like small legal wording tucked into your policy, but it carries significant weight. It is a built-in safeguard that helps ensure life insurance plans continue to serve their purpose even when you hit a rough patch. Whether you are a working professional, retiree, NRI, or homemaker, this clause offers dignity, continuity, and peace of mind.
Before purchasing or renewing a plan, ensure it includes this benefit. It will help your protection remain strong, your past premiums remain valuable, and your loved ones stay financially secure. Life may change, but your protection should never stop.
It prevents loss of all benefits when you miss payments, ensuring some coverage or value continues.
It adds financial protection and ensures your plan continues offering value during tough times.
It provides flexibility and continuity for those managing finances from abroad or with limited income.
It is usually automatic in eligible policies once the minimum premium period is completed.
Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.
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