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9 Things to do if you can’t Pay Life Insurance Premiums

dateKnowledge Centre Team dateApril 29, 2021 views321 Views
9 Things to do if you can’t Pay Life Insurance Premiums

From all the articles you have read on life insurance, you must now know what is a life insurance premium? Premiums are paid by policyholder every year till the policy matures. However, there are times when you just cannot make the payment. What happens in this situation? While it depends on the policy you have taken, but most term life insurance plans lapse when you don't pay the premium by the specified due date. Thankfully, the situation is not all bleak when it comes to non-payment of premiums.

What to do if you Cannot Pay Premiums?

As mentioned before, non-payment of your term life insurance premium results in a lapse. However, there are some options with the whole life insurance policies and permanent life insurance policies to keep the coverage.

1. Payment grace period

According to the IRDAI (Insurance Regulatory and Development Authority of India), all life insurance policies must incorporate a grace period of 30 days from the due date of payment. During this period, the policy will be in lapse-pending status. You should keep in contact with the insurer to find out how long the insurance policy will remain active if the premiums are not paid timely.

2. Use waiver of premium riders

You may skip a premium payment but continue to avail of the insurance benefits if you have a waiver of premium rider. The waiver may kick in if a disability is exempting you from working and earning and thus, making it difficult for you to pay premiums.

The waiver of premium rider will work as long as your disability to work copes with your carrier's rule. Some riders even waive premiums because of unemployment. This option won't be helpful in sudden financial emergencies as the waiver rider begins after some waiting period during which you have to continue making payments.

3. Use dividends to pay the premium

Dividends are received in the whole life insurance policy. When the insurance companies are performing well, mutual companies pay dividends to the policyholder that can be used to increase the cash value. Dividends can also be used to offset premiums. For this, you need to check out with the insurance company how many dividends apply to premiums. However, the benefits may not be immediate.

4. Use the cash value to pay the premium

Permanent life insurance builds up a significant amount of cash value through the years, which can be used to pay for the premiums. You can also borrow against this amount and use that money to pay for the premium amount or any other expense you might have. However, there will be interest charged on the amount borrowed against the cash value.

When the loan is never paid back, the death benefits will decrease, and the beneficiaries will receive a lower amount. The cash value can be withdrawn directly. However, you will need to pay taxes if the amount withdrawn is larger than the cash value portion of the life insurance policy. The withdrawal of cash value also reduces the death benefits.

Learn how to make death and maturity claims on a life insurance policy.

5. Use paid-up option

Yet another option is using the cash value to convert the policy to paid-up status. It helps the policyholder to keep a certain amount of coverage aside without paying additional premiums. However, this method is also likely to reduce the death benefits received by the beneficiaries. The longer the term of the policy is, the higher the cash value will be.

6. Policy face value

You can also directly reduce the premium payment if the policy's face value is decreased. It may affect the overall cash value and the death benefit proceeds, but it is a much better option than policy termination. Some insurance companies allow the policyholder to go back to the original benefit amount, and some do not.

You should contact the insurance company to know the procedure to convert back to the original amount. It would be better if you take the consent of the beneficiaries as they are the ones who are going to be influenced by this.

7. Switching to level benefit

With most policies, you have the option of increasing the death benefits by paying the higher premiums over time. However, you can also reduce the premium amount by switching from an increasing benefit to a level benefit. Reducing to level benefit may affect the ultimate death benefits received by the beneficiary, but it sorts out the problem of paying a higher premium amount to some extent.

8. Switching to term life insurance

Term life insurance premium is cheaper than the permanent policy. You can discontinue the permanent policy and take out the cash value to use it to buy a term policy like Canara HSBC Oriental Bank of Commerce Life Insurance iSelect Star. However, in the case of a term policy, the death benefits are only received in case the policyholder dies within the policy period. You must keep on paying the premiums of the term plan on time, or the plan will lapse.

ULIPs for planning your retirement

9. Cancelling the policy

It might occur that you no longer need life insurance after all your children's expenses you have planned for have been paid off. In this case, you might consider dropping off the policy by surrendering it and get the taxable surrender value. Cancelling a term life policy is simple but cancelling a permanent life insurance policy is a bit complex and time-consuming.

If you miss out on paying premiums, then your term life insurance policy will get lapsed. However, you have some options with the whole life insurance and the permanent life insurance where you can either entirely drop off the policy or use some additional options to keep the coverage amount. It is advisory to contact the insurance agent or financial advisor before finalizing any decision as a wrong decision may put the future of your family and children at stake.

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Frequently Asked Questions (FAQs) for Life Insurance

The premium is one of the most important factors to consider before buying a 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. 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.

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 chances of contracting diseases is low. Young people also opt for 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. Policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the 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 physicianâ 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 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.

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: An 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 policy, the insurance companies generally pay 80% of the total premiums paid.

Buying life insurance 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. Online insurance policies also offer higher benefits. Customers should, however, buy online 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 policy to increase the cover or avoid claim rejection. In case of multiple 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 the 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 life insurance, the insurance company asks for the nominee details. Only the person named as the nominee in the policy can cash out a life insurance policy 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 the 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 family receives the death benefit. In the case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment options are chosen the policy works as a source of regular income.

It is a popular misconception that life insurance is only for accidental deaths. A term life insurance plan like iSelect 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 life insurance in your early 20s because it’s 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 life insurance 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 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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