Of all the life insurance products, the term plan is the easiest product to understand. A term insurance policy is purchased to provide financial security to dependents in the event of an unfortunate premature death. This continues to be the cheapest way to protect your future income and allow your dependents to continue to enjoy financial security in your absence. In situations where you are the sole breadwinner, or where you have taken out loans/commitments (e.g. a home loan), this becomes extremely critical to ensure that your dependents do not face adversity.
However, if one fails to pay the premium, it will cause the policy to expire and defeats the purpose of purchasing a term policy. When the policy lapses, all benefits under the policy cease. After repeated default in premium payment, the policy will terminate (zero benefits and all premium payments paid up to date forfeited). So, to continue enjoying the benefits of term insurance, it is extremely important not to let the policy expire.
Another reason why you should not terminate a policy is that premium amounts increase with age and therefore if you try to buy a new term plan later it will probably cost you more – the era of price reduction is now behind us. Also, as we age, there could be a change in our health condition which may impact whether a new policy is issued – the old policy should not be affected as long as the health condition appeared after purchasing the font.
Make your payments on time
Make payments on or before the due date to prevent your policy from lapsing. If the policyholder does not pay the premium by the due date, the insurance company grants a grace period (generally 30 days for the annual/half-yearly/quarterly payment method and 15 days for the monthly), during which he/she has the opportunity to pay their pending premiums.
If there are temporary cash flow/liquidity issues, you can use the grace period as the policy remains in force without any reduction or termination of policy benefits. A policy will become a lapsed policy, only when the policyholder also fails to pay the premiums due during the grace period. All benefits are intact during the grace period.
Set up automatic payment
To avoid having to remind you to make the payment – even if the insurance companies will remind you – it is always advisable to place standing instructions guaranteeing that the premium will be automatically debited on the due date from your account. . This can be set up when you buy the term policy, or you can do it at a later date if you wish – in either case your insurance company will help. The process to achieve this is quite simple, and many companies also offer digital/online solutions for the same.
Direct debit facilities also allow you to choose the date on which the direct debit will take place. You can also opt for automatic payment by credit card instead of your bank account, although RBI guidelines in this regard have made the process a little more cumbersome than before.
As long as you have a sufficient balance in your account, you never need to remember to pay the premium and continue enjoying the benefits of the term plan. Even when you have set up a standing instruction for direct debit, the insurance company will remind you to make sure your account is funded.
Keep your communication information up to date
To receive all communications from the insurance company, make sure that your latest contact details (mobile, email, address) are available from the company. This will allow you to receive premium reminders – and most companies will use several modes to remind you via SMS, email, letter. In the event of any change in contact details after the purchase of the policy, it is strongly recommended that you immediately update the changes with the insurance company.
Adjust payment frequency
Premium amounts will be highest for the annual payment method. If there is a temporary delay and you find the annual premium amount difficult to pay, most term plans will have an option to change the payment frequency to monthly (check if the product you purchased has this option). This change can help you reduce the burden while still enjoying policy benefits.
Prioritize your expenses
In case of financial difficulties, assess your financial situation and prioritize your expenses – the long-term plan, which is a real need, should be at the top of the priority list. Today, the market also offers options to obtain financing (credit card payment via EMI, conversion of annual premium payment into EMI, etc.) to temporarily cope with the situation.
Reinstatement of an expired policy
In the worst case scenario, where you are unable to continue paying premiums and the policy expires, you always have the option of reactivating the policy when your situation improves. An expired policy can usually be reinstated within 2 years of the last outstanding premium payment date.
To revive the policy, the policyholder must pay the unpaid premiums along with interest due to the late payment of premiums. Depending on the extent of the delay, the policyholder may also be asked to submit a statement of good health or may have to undergo medical examinations for the insurance company to reassess the risk. The final decision to reinstate the policy rests with the insurance company.
In summary, a temporary plan provides financial protection for your loved ones in the event of premature death. Disciplined and regular premium payment will ensure you have a risk mitigation tool. Any missed premium payment will result in lapse of the policy when available benefits and/or coverage are no longer available in accordance with the terms and conditions of the policy.
About the Author: Nilesh Parmar is Chief Operating Officer (COO) at Future Generali India Life Insurance.
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Article first published: Monday, August 22, 2022, 5:38 p.m. [IST]