What Happens When You Stop Paying Your Life Insurance Premiums

What Happens When You Stop Paying Life Insurance Premiums?

Don't Let Your Life Insurance Lapse! Understand the Consequences of Missed Payments.

2023-06-22

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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.

Table Of Content:

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.

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paying life insurance premiums will lapse the policy, which means the protection and coverage offered by the policy are no longer in force.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

Claim Settlement Ratio

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.

  • 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. 

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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.