Grace Period Meaning in Term Insurance
What is term plan?
Amongst the myriad of insurance options out on the market, a term insurance policy is probably one of the most affordable ways to secure your loved ones. When you choose term insurance plans, your nominee becomes eligible to receive a death benefit that could help them lead a stable lifestyle in case anything uncertain were to happen to the life assured.
Take for example that a policyholder has a term life insurance cover of ₹1 crore for a policy term, which lasts approximately ten years. If the life assured were to die in these ten years, the insurance company will give out the entire ₹1 crore sum to the nominee or beneficiary of that policy. Let us say that the policyholder survives the term of the policy. If a pure term plan was selected, the plan will then expire with no benefit paid out to either the policyholder or her/his nominees.
What is a grace period?
Grace period is provided for premium payments. The reason for this is that a person may not always be in the headspace where they can make their payments at an exact date. If there were to be no grace period usually, a single delay in paying their policy’s premium could lead to a lapse. This type of situation would be quite detrimental for the policyholder, the insurance industry, and the insurer, in general.
Certain delays in payments might be due to policy or economic changes like the demonetization that took place in 2016. In lieu of the sudden cash crunch at the time, the IRDAI (Insurance Regulatory and Development Authority of India) provided a supplementary grace period of thirty days so policyholders could pay for their term life insurance or life insurance renewal premiums. As per the IRDAI, the grace period for life insurance products including term insurance varies based on their premium payment frequencies, such as monthly, quarterly, half-yearly, or annual payments.
So based on the aforementioned example, a grace period is defined as those excess days that are allowed for you to pay your renewal premium on your life insurance. A grace period varies as per the method in which your premium is paid. Broadly speaking, there are two ways in which one can pay their term insurance premium –
1. . A one-time lump-sum payment made as a single premium
2. Premiums made as periodic payments on different premium payment frequencies such as yearly, o half-yearly, quarterly, and monthly. When you pay premium annually, the maximum grace period that could be made available to you, including on Bajaj Allianz Term Insurance Plans, is thirty days. However, if you choose to make monthly payments, your grace period will only be valid for fifteen days.
What happens when the grace period for one’s term life insurance ends?
If you choose not to renew your term life insurance during the grace period, your term life plan will lapse and the policy will no longer be valid. A lapsed policy means that all your term insurance premiums that were paid so far, in addition to the coverage secured may be lost. Any claims that are raised on a policy that has lapsed are void.
These claims are simply rejected by the insurer. However, if the policyholder were to die during the grace period, his family is eligible to receive the death benefit after deduction of the unpaid premium. Overall, it is recommended that one should never let their term policy lapse to begin with by making timely premium payments.
If you think all is lost when you miss a premium payment, this is untrue. With the insurance providers, you have the option to revive an old pre-existing policy. You can opt to revive a lapsed policy, but make sure that you check the cost of revival versus simply buying a new term plan first. Based on your insurer, the terms and conditions for reviving a policy will vary. Term insurance providers may give you the option to revive your policy at discounted rates, where taking advantage of these costs makes sense. However, it is always important to go through the terms and conditions to better understand the details of the product.
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