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 insuranceIn 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 planIn 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.
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 applicationAt 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 proofAll insurers will ask you to submit proof of continuous insurability.
3. Current health statusMost 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 timeThe 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 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 incomeYour targeted savings will be made, even in your absence, with a premium funding benefit under the care option.
b. Limited premium payThe 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 additionsThere 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 premiumThis 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 assuredThere are multiple options to avail benefits as lump-sum.
c. Option to cover the spouseAdd your spouse to the same policy with discounted rates for the spouse.
d. Limited premium pay optionYou 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.