Why You Shouldn't Stop Paying Your Life Insurance Premium?
Different people may have different financial goals. However, no matter what life stage people may be in or what their individual goals may be, there is one thing that is common for everybody. And that is ensuring that their loved ones are financially protected, no matter what happens. Undoubtedly, this will be a top priority for you too. And life insurance can help you with this goal.
What is life insurance?
Life insurance is a contract formed between an individual and an insurance provider. As per this contract, the insurance provider or insurer agrees to provide a life cover to the individual. This life cover is generally valid for a specific period of time, known as the policy term. In case the individual’s demise occurs during this policy term, the insurer pays out the sum assured under the plan. These are known as the death benefits, and they are paid to the nominees mentioned in the plan.
However, if the individual survives the policy term, most life insurance plans pay out maturity benefits to the individual at the end of the policy term, when the plan matures. Term insurance is the only exception to this, since it only offers a pure life cover.
Irrespective of the kind of life insurance you buy, the insurer levies a charge called the premium, in return for the life cover and the other benefits of life insurance that you get from your policy. This premium can be paid as a one-time lump sum payment in the case of single premium plans, or as periodic payments in the case of regular premium payment or limited premium payment plans. Depending on the terms and conditions of your policy, you can choose to pay your premiums monthly, quarterly, semi-annually or annually.
But what happens if you miss a premium payment? Or if you stop paying your premiums on the due dates?
The policy will lapse when you stop paying premium
If you stop paying your premiums on time, your policy will lapse in most cases. In other words, you will no longer be eligible for all the benefits under the policy.
Insurers understand that sometimes, for various reasons, you may miss a premium payment. And that is why your policy does not lapse right away. Your insurer will give you something known as a grace period, during which you can still pay your premium and continue to keep your policy active. Typically, this grace period is around 30 days for other frequencies and 15 days from the due date where premium payment mode is Monthly
How does it work?
Let’s take up an example to see what happens if you stop paying your premiums. Say you have purchased a life insurance policy with a policy term of 20 years, and a life cover worth Rs. 50 lakhs. You are required to pay an annual premium of Rs. 10,000 on May 1 each year. For the first 11 years, you pay your premium diligently. However, in the 12th year, you forget to make your premium payment on time.
So, the grace period will come into effect for a period of 30 days from May 1, that is, till May 30. Here is what will happen.
If you pay your premium on or before May 30:
In this case, your policy will not lapse.
If you fail to pay your premium on or before May 30:
In this case, your policy will lapse from May 31, and you will no longer be eligible for the benefits under your plan.
Why you shouldn't stop paying your life insurance premium
You should not stop paying your life insurance premium because that way, you can ensure that your policy remains active. If, on account of a missed payment, your policy does lapse, here is what could happen.
- Your family may be deprived of their financial safety net.
- If you had purchased a savings plan, your life goals will also be derailed, because you will not be eligible for the full savings from your life insurance plan any more.
- If you had purchased a ULIP, it may impact your wealth creation journey.
See how important it is to pay your premiums on time? If you want to continue enjoying the benefits of life insurance without any interruption, make sure that you set prompt reminders and pay your premiums as and when they are due. If you are afraid of missing payments, you may consider buying a single premium plan or policies with limited premium payment terms, so you can get done with paying premiums sooner than later. You can also register for an auto debit transaction/facility, so your premiums are automatically debited from your account on the due date.
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