What Are Late Payment Charges in Life Insurance?
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A life insurance policy is a contract signed between the insurer and the insured where the latter agrees to offer financial compensation in case the policyholder meets an untimely death. Based on a certain amount of specific ‘sum assured’ chosen, the policyholder needs to pay out a certain amount of premium at regular intervals to the insurer. It is the life insurance premium that is paid out that helps in keeping the life insurance plan active. However, many times, it so happens that the policyholder fails to pay the premium. In such a case, a different situation arises and there are late payment charges as well when the premium amount is delayed. So, let us understand the late payment charges in life insurance.
What Happens If You Delay in Paying Life Insurance Premium?
Missed paying the life insurance premium? Now, what! Let us understand what happens if there is a delay in the payment of the life insurance premium:
- Grace Period: A Grace Period is given to policyholders in case they fail to pay the life insurance premium on time. The grace period is given as a second chance during which the premium can be paid out. Generally, the grace period in life insurance is 30 days during which the delayed life insurance premium can be paid. However, it is better to check with your insurer about the grace period as sometimes the timeline of this period varies from one insurer to another. During the grace period, the benefits of the policy will remain active and you will be eligible to raise life insurance claims.
- Lapse of Life Insurance Policy: In case you fail to pay the life insurance premium even during the grace period, then the life insurance policy will most likely lapse. Once the policy has lapsed, policyholders will stop getting the policy benefits and will be unable to raise any claim. However, policyholders can still get their lapsed life insurance policy revived by undergoing a ‘Reinstatement’ process.
What Are Late Payment Charges in Life Insurance?
If the premium for the life insurance policy has not been paid on time, then there are different kinds of penalties that policyholders might have to endure. Turns out that if a policyholder is reviving the policy through ‘reinstatement’, then it can be an expensive affair for the policyholder. Most likely, in order to revive the life insurance policy, policyholders will need to pay all the outstanding premiums, and there will be an applicable rate of interest on it as well. The late charges vary from insurer to insurer, so it is important to check the same with your insurer before buying it.
Moreover, it is also important to understand that the late payment charges also depend on the duration for which you have not paid out the life insurance premium. Generally, you can only revive your life insurance plan within 5 years of the last premium paying date. Along with the late payment charges that you need to pay, you might even have to undergo a medical test. A medical test will help the insurer understand and assess your present health condition and accordingly will fix a premium for your life insurance plan.
How Can You Avoid Paying Late Fees in Life Insurance?
There are a few tips that will prevent you from paying late fees in life insurance:
- You can select an auto-debit option for your life insurance premium payment. This will help in automatically deducting the premium amount from your bank account.
- You can also set a reminder in advance for the life insurance premium date so that you do not miss out on paying the premium on time.
- It is a better idea to opt for a yearly premium policy so that you are free from paying out the premium on a monthly basis.
- You can also keep track of the reminders sent by your insurer regarding the due date for premium payment.
Take Away
Thus, it is always better to pay for life insurance premium on time and avoid paying late premium fees. Moreover, even if you fail to pay the life insurance premium on time, make sure to do so during the ‘grace period’. Doing so will also prevent you from undertaking the process of ‘reinstatement’ in life insurance.
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