What Happens If You Stop Paying Your Life Insurance Premium?
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A car needs gasoline to function, and humans need water to stay active. Similarly, life insurance plans need premiums to stay in force. A premium is an amount paid by the policyholder to the insurance company in exchange for life insurance coverage. When you stop paying your life insurance premiums, your policy may lapse. Therefore, an insurance provider will not be required to offer you any insurance benefits. Read on for more details.
What Happens If We Don’t Pay Insurance Premiums?
In exchange for life insurance protection, the policyholders must pay a premium throughout the policy's term. However, if you stop paying a premium for any reason, then your insurance policy may terminate. Depending on the type of insurance and the insurance company, the terms and conditions may vary. When you are unable to pay a premium for your term life insurance policy before the due date, the company will discontinue providing you with policy coverage. As a result, all the insurance benefits and sums that you have paid until now will be forfeited and will be considered a discontinuance fund. The policyholders can claim this fund only after the lock-in period.
According to the Insurance Regulatory and Development Authority of India (IRDAI), each insurance company will provide a grace period of upto 30 days to the policyholders. During this period, the policy remains active, and the beneficiary can claim the death benefit.
Is it Possible To Restore the Existing Life Insurance Policy?
Some life insurance plans provide bonuses to the policyholders. Therefore, we definitely would not want to lose the benefits of our existing plan. The majority of insurance companies offer policyholders the reinstatement benefit. However, you may have to pay a penalty or late fee depending on the period of the policy's expiration. A life insurance company may also ask you to undergo a medical examination to restore your existing insurance plan.
Which Is Better: Reinstating the Policy or Buying a New One?
When a life insurance policy expires due to the non-payment of a premium, the policyholders have to pay a late fee or a penalty at the time of restoring it. So, many people buy a new life insurance policy instead of restoring their previous ones to avoid paying these fines. Before you buy a new policy, there are a few things you should think about.
- You will lose all the premiums that you have for your old insurance policy if you purchase a new life insurance plan.
- You may have to pay a high premium as compared to the one you were paying for your previous insurance plan. This is because a premium increase with the increase in the age of the policyholders.
Therefore, it is better to restore your existing insurance policy instead of buying a new one. You can continue to receive the benefits earned under the previous policy by paying a fee.
How To Avoid the Non-Payment of Life Insurance Premiums?
In order to avoid the non-payment of a life insurance premium, you can take the following steps into consideration.
Choose the Right Amount of Coverage
When purchasing a life insurance policy, make sure that you choose the coverage amount that fits your budget. In most cases, the policyholders fail to pay a premium due to the non-availability of funds. Therefore, before purchasing any life insurance plan, compare the different quotes offered by the companies and choose the one that is affordable for you.
Automated Payment System
Another way to avoid non-payment of life insurance premiums is to turn on the auto-pay feature. By doing so, a premium amount will be automatically deducted from your bank account on the renewal date chosen by you.
Conclusion
In conclusion, an insurance company provides financial protection to both you and your family. However, if you fail to pay a premium towards your life insurance policy, then your policy will be terminated. You can restore your existing policy within a certain time period, usually six months from the expiration date. Moreover, the company may charge a late fee or restoration fee from you.
