A term insurance is a pure protection policy that offers financial security to your loved ones in case of untimely demise. However, to enjoy the benefits of term plans or term plans with a return of premium, paying the term plan premium on time is essential.
This article will discuss what happens if you fail to pay the term insurance premium on time.
1. Term Insurance Policy Lapse
Your policy will be considered a lapsed policy if you are not able to pay the term plan premium before the end of your grace period. The grace period is a fixed period for paying the premium after the due date. The grace period is usually for 30 days, but it varies from insurer to insurer, during which you can pay your premium without any penalty.
2. Loss of Policy Benefits
Once your policy lapses, you will lose all the benefits associated with the policy, such as the sum assured, maturity benefit, and riders. The policy will no longer be in force, and your beneficiaries will not receive any payout in case of your demise.
If you have chosen a premium return term plan, you will not receive the premium on maturity. The loss of policy benefits can significantly impact your financial plan, and you may have to start over again.
3. Reinstatement
You can still revive a lapsed life insurance plan by paying the overdue payment and the interest amount during the revival period. It might vary from one insurer to another, but the revival period is typically two years from the date of the first unpaid premium.
You’ll need to complete a reinstatement form and present a certificate of good health to reinstate your coverage. To confirm your suitability for insurance, the insurer could also ask you to get a medical check-up.
But, reinstating a policy can be difficult, and you have to pay a higher term plan premium than before. In addition, the insurer may also place further restrictions, such as lowering the sum assured or restricting the insurance benefits. Hence, paying the premium on time is recommended to prevent the hassle of reinstating the insurance.
● Surrendering the Plan
You can surrender your return of premium term policy and get the surrender value if you don’t want to reinstate it. The insurer will pay you the surrender value if you surrender the policy before the term ends. The same benefit, however, will not apply to a pure-term plan.
In the case of premium return term plans, you may receive the value of the premiums paid, less any applicable penalties. The surrender value, however, is less than the sum assured, and you risk losing a significant sum of money if you surrender the policy.
Conclusion
The non-payment of term plan premiums not only affects the benefits payable to your beneficiaries but will also impact your future premiums in case of new policies. As a result, it’s essential to pay the premium on time and maintain the validity of your coverage. You can reinstate or surrender the policy even if you’ve missed the premium payment deadline. However, planning your finances and paying the premium on time is advisable to avoid any hassles.
Leading insurers like Tata AIA Life Insurance provides a quick and seamless online purchase and renewal process. You can buy or renew your regular term plan or a term plan with a return of premium and enjoy comprehensive coverage at an affordable premium.
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