Late Payment of Insurance Premium may Cost You Dear
Policyholder has to pay all outstanding premiums, interest and applicable taxes, to revive a lapsed policy
There are instances in life when people miss paying insurance premium on time, due to various factors. The rising Covid scenario can be one such factor, when people might forget paying insurance premium due to uncalled for medical emergencies.
If one has missed an insurance premium, be it life, health or motor; insurers usually provide a grace period after the premium payment date to do so. During this time, the insurer sends a memorandum to pay the premium and informs the policyholder about renewing the insurance. But if the grace period is over, and one has still not paid the premium, the policy lapses. Insurers are today implementing innovative techniques to ensure customers renew their policies on time, whether through email, SMS or snail mail.
All insurance companies provide a second chance of paying premium in the form of a grace period. In a way, it is the additional time a policy holder gets after the due date of renewal, so that the policy does not lapse. Different insurance companies provide different durations of grace period. It usually starts from 15 days and can last up to 30 days, depending on the product and duration of the policy.
Under most insurance policies, the worst impact of lapsing of a policy is on the policyholder and dependents in the family. For the same reason, insurers provide revival of lapsed policy options, so that the family’s financial protection remains.
In case of term life insurance, the insurer allows a grace period of 15 days, in case the policyholder pays the premium in monthly installments. A grace period of 30 days is offered in case one pays the premium quarterly, half-yearly or yearly. The maximum revival period for term insurance policies issued at the end of 2019 is 2 years. Policies issued after December 2019 have a revival period of 5 years, post which the policy lapses.
In case of health insurance policy, an insurer gives a grace period of 30 days. If the policy holder fails to renew the policy during this time, the policy lapses and cannot be revived. In such a case, the person has to buy a new health insurance cover and has to pause till the waiting period of the fresh policy is over.
In motor insurance, it is important to revive the policy within 90 days, or else the policy holders lose the no claim bonus which can go up to 50 per cent of the own damage premium. One can revive the policy after 90 days, subject to a positive vehicle inspection report.
Revival of lapsed policy can turn out to be an expensive affair, where the policyholder has to pay all outstanding premiums, along with interest on outstanding premium and applicable taxes. Hence, it is always suggested that policyholders renew their policies on time by keeping a track on policy renewal and premium payment dates. Using an automatic ECS (Electronic Clearing System) is another good way, as it makes sure that the premium is automatically debited from the bank account before the due date. Email ID and phone numbers should be correctly shared so that reminder mails and calls can be attended and addressed by the policyholder. Most importantly, pre planning the budget for the policy period helps one prevent the policy lapse.
The author is CEO and Co-Founder, RenewBuy Insurtech.
DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.