Life Insurance can be defined as an agreement between an insurance provider and the policyholder in which the insurance provider pays benefits after a stipulated period of time or upon the demise of the policyholder. These benefits are given in lieu of a premium amount that the policyholder pays for a pre-decided period. This means that as a policyholder, you're required know what is your annual premium and pay them on time to receive your insurance policy's benefits.
A very natural question that comes to mind is, what happens if you stop paying life insurance premiums? Does your policy lapse? Can you then restore this lapsed policy? If not, should you purchase a new policy? Let's take a look at the answers to these questions and understand what is insurance premium and why it must be paid on time.
Does Your Policy Lapse if You're Unable to Pay the Premiums?
All insurance plans provide a grace period, usually of 30 days, for paying the premium after due date. The IRDAI stipulates this, and your insurance policy will not lapse if you pay your life insurance premium within this grace period. Therefore, you must know what is your insurance premium due date and make sure the payment is made within 30 days from this date.
Your policy is completely valid during this grace period. This means that if something were to happen to you during this time, your family would still be entitled to all the policy benefits. However, it's important to note that every insurer has its guiding principle. Hence you must check what is the insurance premium grace period offered on your policy along with other related regulations.
The concept of lapse also depends on the nature of the policy. In the case of term insurance, your policy would lapse if you're unable to pay your premium even after the grace period, thereby forfeiting the premium amount paid till now, along with all the other benefits. On the other hand, in ULIPs, if you don't pay the premiums in the first five years, the policy is considered lapsed. After that, all the benefits move to the discontinuance fund, which you can access only after the completion of the lock-in period.
Can a Lapsed Policy be Reinstated?
Sometimes we know what the insurance premium due date is but aren't able to make the payments on time due to some unavoidable circ*mstances. This causes our policy to lapse. But, if this has happened to you, you need not fret too much about it. There's a provision to reinstate or restore your policy within a stipulated timeframe. This process of reinstatement will be different for different policyholders and would largely depend on the nature of your policy.
Should You be Purchasing a New Life Insurance Policy if the Old One is not Restored?
In most cases, reinstating a lapsed policy will be better than purchasing a new one. This is primarily because the premium costs increase with age, making it even harder for you to continue paying the premium.
So, now you know what is an insurance premium and what happens if you stop paying whole life insurance premiums. While it's possible to reinstate the policy, it's best to avoid such circ*mstances by knowing what is your insurance premium due date and making the necessary payments on time. You must remember that the payments that you're making towards a life insurance policy will help protect your family from adverse situations in your absence.
Disclaimer:
*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.
Make responsible financial decisions. Consult with your financial advisor before making any decisions on insurance purchase.
