As we all know it, life can be quite unpredictable. A crisis might just be around the corner and you may not know it. That is why it is extremely important to account for unforeseen contingencies and crises. One of ways to do that is through a term insurance plan. It can help keep your family protected even in the event of an unforeseen or untoward incident.
However, to enjoy the benefits of a term insurance plan, it is also important to prevent it from lapsing. Since a lapsed policy effectively leaves your family unprotected, you should ensure that you keep your policy active at all times. If you’re wondering what is term insurance and how to ensure that it never lapses, here’s everything that you need to know.
What is term insurance?
Term insurance is a life insurance policy that offers financial assistance to your family in the event of your death. For instance, when you purchase a term insurance plan from an insurance company, the insurer provides you with a life cover in the form of a death benefit, which is essentially a certain specified sum of money. This sum of money will be paid out to your nominees/beneficiaries in the event of your death. In exchange for the life cover benefit, you are required to make periodic payments to the insurer in the form of term insurance premium.
Term insurance policies typically provide you with a life cover only for a specific period, beyond which the policy would cease to offer you any benefits. That said, here is something that you should note. The death benefit in a term insurance plan will be paid out to your beneficiaries/nominees only in the event of your death during the policy tenure. And since such a plan only offers a death benefit, the term insurance premium is usually low when compared with other more traditional forms of life insurance.
Reason why your term insurance policy may lapse and ways to prevent it
Now that you know the answer to the question ‘what is term insurance?’ let's take an in-depth look at the reason why your term insurance policy may lapse and what you can do to prevent it.
Nonpayment of premiums is the primary reason why a term insurance policy lapses. It is extremely essential to continue paying your term insurance premiums throughout the tenure of the policy to ensure that you and your family stay protected. That said, your policy would not lapse the second you miss paying a premium. Usually, the insurance company gives you 30-days (15 days for monthly mode) grace period from the term insurance premium payment due date.
You can still keep your policy active by paying the premium within the grace period. If you miss paying the premium within the stipulated grace period, only then will your policy lapse. Once your policy has lapsed, you cease to enjoy any benefits offered by the term insurance plan.
Nevertheless, there are many ways to prevent your online term insurance policy from lapsing. Here is a quick look at some of the ways in which you can do so -
1. Ensure that you pay premiums on time
This is obvious in itself. As long as you pay all of your premiums on time on or before the due date, there is zero chance for a term insurance policy to lapse.
2. Set up an auto pay facility or a standing instruction
If you find it hard to make premium payments on time or have trouble remembering the due dates, it is a good idea to set up an auto pay facility or a standing instruction with your bank. Setting up such a process is extremely simple, takes very little time, and in most cases can be done online through your net banking facility itself. Once you have set up the facility, the bank will automatically make the premium payments for you regularly on the specified day without requiring any manual intervention.
3. Always make sure to update your communication details
If you ever change your phone number, your email ID, or your address, always make sure to let your insurer know. This way, you can reduce the chances of missing premium payment reminders.
Despite following the above-mentioned ways, if you ever find yourself with a lapsed policy, do not worry. As per IRDAI regulations, an insured can revive his lapsed policy during the revival period as stipulated in the regulations. That said, your insurer might ask you to make all the missed premium payments along with a penalty and complete the necessary formalities to revive your lapsed policy.