What Happens When You Stop Paying Life Insurance Premiums?

2023-06-22

1020 Views

5 minutes read

Locate branch

Resume journey

Pay Premium

Live Life More Confidently

Get best insurance from our experts

Name is required Name should be Valid

Mobile Number is required Mobile Number should be Valid

Email is required Email should be Valid

DOB is required DOB should be Valid

Annual Income*

< 3 3-5 5-7 7-10 > 10

Annual Income is required

I agree that even if my contact number is registered with NDNC / NCPR, I would still want the Company to contact me on the given number and email id for the clarifications/product information sought by me and agree that I have read and understood the Privacy Policy and agree to abide by the same.

Please tick to proceed further.

Thank you for your interest in our product. Our financial expert will connect with you shortly to help you choose the best plan.

Ever wondered what happens if you stop paying life insurance premiums? When you do not pay the premiums, the policy may lapse. However, this may vary from policy to policy. Different types of life insurance policies have different terms and conditions. When you buy any life insurance plan, you have to pay fixed amounts each year to the insurer as per the premium payment term.

Key Takeaways

Failing to pay life insurance premiums can lead to policy lapse, which results in a loss of coverage and benefits.
Most insurers offer a grace period of usually 30 days to allow the policyholders a buffer to make the payment before the policy lapses.
The best two ways to avoid policy lapse are to put the premiums on autopay and to choose an affordable plan.
There are some ways you can reinstate or restore a lapsed plan. This includes contacting the insurer and following a thorough process of documentation and penalty payment.
In some cases, you may be required to undergo a medical examination to check if your current health status is eligible for life insurance.

What is the Maximum Deadline to Pay Premiums of a Life Insurance Policy?

According to the Insurance Regulatory and Development Authority of India (IRDAI), you have a grace period of 30 days from the payment due date. It applies to all the life insurance plans. Insurance companies understand that not everyone can pay premium before or on the due date. Sometime, due to some unavoidable reasons, a person may fail to pay it.

Begin securing your future

Full Name* Please enter correct name Please enter the Full name

Mobile Number* Please enter valid mobile number Please enter Mobile Number

Email* Please enter valid email Please enter Email

...Read more Consent is required

How to Avoid Non-Payment of Life Insurance Premiums?

Not paying life insurance premiums will lapse the policy, which means the protection and coverage offered by the policy are no longer in force. A life insurance policy is an essential financial tool for protecting your life goals. Having a policy in your portfolio may prove to be beneficial in the future.

You may consider the below-mentioned points to avoid non-payment of your policy:

Activate Auto-Debit

If you have trouble remembering your payment due dates, activate auto-debit for the insurance premium payment. It will ensure that the premiums due are always paid on time. Also, the probability of your policy lapsing due to non-payment of premiums will be low.

Choose the Right Cover Amount

You should have the right cover amount so that your financial needs are met. However, while choosing the cover amount, also ensure that you can afford to pay the premiums without any fail.

Did You Know?

Some permanent life insurance policies, like whole life, have a cash value component. You can borrow against this cash value or surrender the policy for its cash value.

Source

Can You Reinstate or Restore a Lapsed Life Insurance Policy?

The answer is yes, but the procedure may differ based on your plan and insurer. If you fail to pay the premiums and the policy lapses, you may be required to reinstate it by trying the methods that the insurer suggests. They may offer a limited period within which you are allowed to do so and on meeting certain conditions.

Steps to Reinstate a Lapsed Policy

The procedure of restoring the plan after you stop paying life insurance premiums may differ depending on what plan you have and who the insurer is, but the basic plan is as follows:

You must contact the insurer and check if you are eligible for reinstatement.
If the answer is yes, then you should ask about the prerequisites.
Submit the reinstatement request along with the necessary documentation.
Pay any overdue payments if needed, along with the penalties you are liable for.
They may ask you to submit further medical documentation to restore the policy.

Conditions for Policy Reinstatement

Not all those whose policy has lapsed can reinstate it. There are some conditions that you must meet to be eligible for the procedure. It is to ensure the policyholder is genuine and there is no chance of fraudulent activity associated with the request. Firstly, you should be aware of the timeframe. Most insurers have a period within which the policyholder can reinstate their plan. Also, the procedure includes payment of interest and penalties. Make sure you are aware of them before moving forward. Let’s know what the other conditions are:

Proof of Insurability

The insurer can ask you to provide proof of life insurance to check your insurability before approving the request. It is only to ensure the risk assessment stays accurate and fits right with their terms and conditions.

Medical Requirements

As per the guidelines, that is the sole discretion of the insurer. You should understand that if your policy lapsed a long time ago, you may be required to undergo a medical examination. This is only to ensure the current health status is like when you first purchased it.

Documentation

You will also be asked to provide other documentation for the revival, and here is a list of it. Know that the insurer can ask for more documents according to their terms and requirements.

Completely filled reinstatement form
Identity proof
Address proof
Medical examination report (if asked for)
Previous payment proofs

Life Insurance - Top Selling Plans

We bring you a collection of popular Canara HSBC life insurance plans. Forget the dusty brochures and endless offline visits! Dive into the features of our top-selling online insurance plans and buy the one that meets your goals and requirements. You and your wallet will be thankful in the future as we brighten up your financial future with these plans.

Family Shield: Enhanced Protection

iSelect Smart360 Term Plan

3 Plan options
Life cover till 99 years
Steady income benefit
Block your premium at inception

Start Young, Pay Less, Stay Secured

Young Term Plan

Life cover till 99 years
Coverage for spouse
Block your premium rate
Covers 40 critical illness

Fixed Returns, Zero Risks & Worries

iSelect Guaranteed Future Plus

4 Plan options
Life cover + Guaranteed benefits
Accidental death benefit
Premium protection cover

Should you Buy a New Policy or Reinstate the Old One?

When a life insurance policy lapses due to non-payment of premiums, policyholders have to pay late fee and penalties to reinstate the policy. The process of reinstating a lapsed policy is cumbersome. Hence, most policyholders buy a new one rather than reinstating the old ones.

Let us consider both options in detail so that you have clarity in your decision-making process.

Buying a New Policy

If you decide to buy a new insurance policy, remember that the premium will also increase. The insurance premium increases with age. Also, you will not get back all the premiums you paid for the old policy.

Reinstating Old Policy

The process of reinstating an old policy may vary from insurer to insurer. Generally, you have to submit a reinstatement form to the insurer. After that, the insurer may ask you to present proof of insurability. The insurer may ask you to go through medical tests to assess your current health status.

Weigh the pros and cons of both situations before making a decision.

Impact of Lapsed Premiums on Benefits

Policy lapse can significantly affect your payout during the claim settlement process and coverage. Therefore, it is advisable to always pay your premiums on time and choose an affordable plan. Let’s go through the consequences of lapsed policy:

Claim Settlement Impact

If the policyholder dies during the grace period, the beneficiaries may receive the claim settlement but with deducted outstanding premiums. If the policy has already lapsed at the time of death, the beneficiaries are not eligible to receive the payout. The coverage is lost, which can be a huge financial loss for the family.

Coverage Reduction or Loss

Those who reinstate the lapse may lose some of the coverage and receive only reduced benefits. However, these all factors only depend on the type of the plan and the insurer. ULIPs and endowment plans with benefits of investment and savings components may have different terms, and you may receive a partial payout.

Final Words

Life insurance premiums are crucial for keeping your policy active and ensuring your loved ones are financially protected in your absence. By setting up automatic payments, considering your budget when choosing coverage, and understanding your reinstatement options, you can avoid policy lapse and ensure your life insurance policy remains a valuable financial tool.

Glossary:

Grace Period: A period, typically 30 days, given by the insurance company after the due date to pay the premium without penalty.
Policy Lapse: Termination of a life insurance policy due to non-payment of premiums.
Free Look Period: A window of time, usually 10-20 days after policy purchase, during which you can cancel the policy and receive a full refund of premiums.
Lock-in Period: A period in some life insurance policies, typically in unit-linked plans, where you cannot surrender the policy without facing financial penalties.

FAQs Related to Non-Payment of Life Insurance Premium

Insurance companies have a provision of a grace period if any person misses a payment date. Usually, the duration of this window is 30 days. If you pay within 30 days, the policy will not be lapsed.

However, it is essential to note that every insurance company has different terms and conditions. The duration of the grace period may vary. If the policyholder passes away during the grace period, nominees will receive the death benefits.

The premiums you had paid for the policy that has lapsed now may or may not be refunded. It depends on the terms and conditions of your life insurance policy. For example, if the policy had a lock-in period, the premiums are moved to a fund and will be paid back after the lock-in period.

Generally, you won't get all your money back if you cancel life insurance. There are exceptions, though.

Cancelling life insurance might not be the best idea. It's there to provide financial protection for your loved ones in case you pass away. Consider other options like reducing coverage or finding a cheaper plan before cancelling.

It depends. There might be fees for cancelling life insurance, especially outside of a specific window of time called a "free look period." During this free look period, you can typically cancel and get your premiums back. Check your policy details or contact your insurer to find out about fees and the free look period.

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.