Grace Period for Term Insurance Premium Payment - Meaning & Working

source: cloudfront

Although a regular payment option for a life insurance plan is much more economical than a single-time payment, paying them regularly within the due time may be a hassle.

Moreover, you can find yourself in an unexpected financial crutch, preventing you from paying the premiums before the expiry date. Therefore, insurance providers offer a grace period that buys you time to pay off your premium without a renewal penalty. Please keep reading to understand why the grace period for term insurance premium payment is essential.

Simply put, a grace period for term insurance is where an insurance company gives you a few additional days to pay your life insurance premium and renew your policy. This additional period varies based on the premium payment method you choose.

The majority of Indian insurance companies accept two payment methods for premiums. First, in a single-premium plan, you pay your premiums in a lump sum at the time of purchase. The second option is the Regular Premium, where you can pay your premium monthly, quarterly, bi-annually, or annually.

As per the IRDAI guidelines, the frequency of your premium payments will determine the number of days you will get as a grace period.

In case of an unfortunate event, if the life insured passes away before making the premium payment within the grace time, exceptions are made by the insurance company.

Generally, in such a situation, your family will be entitled to the death benefit according to the terms and conditions of the policy. However, the unpaid amount of premium will be subtracted by your insurer from the sum assured.

Almost all insurance companies in India entitle their policyholders to restore a lapsed term plan within two years after the term insurance grace period has expired. However, each insurer may have a different policy regarding the terms of revival.

In addition, for the policy to be revived, you will also need to pay additional money in the form of interest costs, penalties, revival fees, etc. A medical exam may also be required by some insurers, and you will be responsible for the costs.

Therefore, whether you should revive the lapsed plan or simply buy a new one will depend on the cost-effectiveness. Before deciding, you should weigh out the costs for both and see if a new policy has a better offer than the previous one.

The Grace period for term insurance premium payment is an essential window that lets you safeguard your policy in case you are unable to pay a premium on time due to financial constraints. Therefore, this period should be utilised effectively.