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What Happens When You Stop Paying Your Life Insurance Premiums?

dateKnowledge Centre Team dateAugust 02, 2021 views114 Views
Life Insurance Premium | Best Life Insurance Plan

Buying the best life insurance plan is a wise financial decision. However, when life gets heavy, it is easy for one to forget about paying for their life insurance premiums. Hectic life schedule, unfortunate events and change in income level are a few blockers for non-payment of premiums. But there are consequences for this forgetfulness when it comes to life insurance premiums.

Policy will Lapse when you Stop Paying Premiums

When you buy any life insurance plan, you have to keep paying fixed amounts every year to the company until the insurance's term ends. If you stop paying life insurance premiums for any reason in the given time, your policy will be terminated by the insurer.

A lot of factors play a vital role in this policy lapse. The type of policy is a crucial factor to consider.

1. Term insurance

In the case of term insurance, if you do not pay your timely amount to the insurance company within the due date, then the policy will have lapsed. This policy lapse will forfeit the insurance benefits along with the premiums paid.



2. Unit-linked insurance plan

In the case of ULIP, if you fail to pay the insurance amount in the first five years, then the policy will get lapsed while all your benefits will be moved to a discontinuance fund.

What is the Maximum Deadline to Pay?

According to the Insurance Regulatory and Development Authority of India (IRDAI), you have to honor a grace period typically 30 days from the date given to pay the insurance amount. This 30 days extension applies to all life insurance plans. The insurance companies understand that not everyone will pay their insurance amounts before or on the due date.

Many reasons contribute to this delay. Additionally, in recent times, the covid-19 has caused significant damage to everyone's savings. So this grace period exists for almost every insurance plan to help the insurance holder get through difficult times without losing their plan.

If anything happens to the insured during this grace period, the full benefits of the policy can be claimed. However, the grace period payments are higher than regular premium payments.

Restoring or Reinstating the Lapsed Policy

Now, if your policy has lapsed, you might be wondering what to do next. Fortunately, there is an option to restore or reinstate the lapsed policy! This process varies from insurer to insurer and is based on the type of policy you own.

Learn how to revive your lapsed life insurance policy.

However, this process can be expensive with all the penalties you have to pay. Furthermore, you may have to go through several medical tests too. The following aspects are usually required to reinstate/restore lapsed policy.

1. A Reinstatement application

At the time of policy inception, you can find an application form. This application for reinstatement is asked to submit by every insurer. It is the original application so take extra care while filling it up.

2. Continuous insurability proof

All insurers will ask you to submit proof of continuous insurability.

3. Current health status

Most insurance companies will make you undergo medical checkups to understand your current health status. These checkups are done to evaluate if there are any changes since the original application.

4. Policy lapse time

The reinstatement point of your insurance policy is dependent on the duration of your insurance policy lapse.

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

We know that the premiums for term plans increase with age. If you already have a better policy, it is always advised to reinstate it instead of switching to a new one. Let us consider the following example.

Suppose Ravi brought a life insurance plan when he was 25, for which he has to pay 8000 per annum. His plan got lapped because he couldn't pay the amount within the grace period. Now to reinstate the policy, he has to pay around 25,000 with all the penalties included. Instead, if he chooses to buy a new policy, he has to pay 10,000 per annum. These costs will add up in the long run. This is the reason reinstating policies is preferred.

However, you can always choose to opt out of an insurance plan and choose a new one. If you are thinking about new plans to choose from, here are a few.

Invest 4G

Invest 4G plan is an ideal life insurance plan for you to choose. This plan offers you customization according to your goals and changing requirements. You can have complete control over your savings and insurance needs as the insurance policy provides you with portfolio management options and flexibility.

a. Guaranteed regular income

Your targeted savings will be made, even in your absence, with a premium funding benefit under the care option.

b. Limited premium pay

The mortality charges deducted during the policy term for both regular and limited premium paying policies will get added to the fund value.

c. Assured loyalty additions

There are many loyalty additions and wealth boosters that the plan provides during the policy term. These other additions will boost your investments.

iSelect Star Term Plan

To have a shield against all your life's uncertainties, choose iSelect Star Term Plan.

a. Return of premium

This plan offers an option to claim a return of premium benefit. With this, all your premiums will be returned when you outlive the policy term.

b. Increasing sum assured

There are multiple options to avail benefits as lump-sum.

c. Option to cover the spouse

Add your spouse to the same policy with discounted rates for the spouse.

d. Limited premium pay option

You can choose a single bullet payment or split the payment for 5/10/15/20/25 years.

Be wise about your decision in either terminating the existing plan or reinstating it. Calculate all the benefits and losses you may have to face with each option and only then make a choice.

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Frequently Asked Questions (FAQs) Related to Life Insurance Policies

The premium is one of the most important factors to consider before buying a life insurance policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of www.canarahsbclife.com.

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance plan. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Life insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age: It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chance of contracting diseases is low. Young people also opt for the best life insurance policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender: The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits: The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term: Policy terms are also taken into consideration by insurers while deciding the premium amount. Life insurance policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the best life insurance policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation: The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physician’s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence, there are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the life insurance policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance plan.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: A life insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the life insurance policy, the insurance companies generally pay 80% of the total premiums paid.

Buying the best life insurance plan online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. The best life insurance policies online insurance offer higher benefits. Customers should, however, buy online life insurance policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one life insurance policy to increase the cover or avoid claim rejection. In case of multiple life insurance policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy a life insurance policy, the insurance company asks for the nominee details. Only the person named as the nominee in the life insurance plan can cash out in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term, the beneficiary receives the death benefit. In case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment option is chosen, the policy works as a source of regular income.

It is a popular misconception that life insurance plans are only for accidental deaths. A term life insurance plan like iSelect Star Term Plan also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy a life insurance plan in your early 20s because it is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy the best life insurance plan at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why life insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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