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What is Insurance Grace Period

Know the finer nitty-gritty related to the insurance grace period.

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Insurance policies are our useful haven when it is about safeguarding our life, health, and precious assets. However, many people often forget one fundamental aspect about keeping their insurance policies active with regular premium payment. You can only get the insurance benefits under a policy when you have paid the due premium on time.

In case you are unable to pay insurance premium timely, all insurance companies give you a second chance to pay it in the form of an insurance grace period.

To put it simply, an insurance grace period is the specific additional time you get after the due date to pay the premium and avoid a policy lapse. It is clearly mentioned in the policy contract, and it is crucial to know about it for the time ahead. 

How Does Insurance Grace Period Work? (With Illustration)

Providing insurance grace period to the policyholders is somewhat essential for an insurance company. It is because they may not always be in a good financial situation to pay insurance premium timely. You can think of insurance grace period as a shield for policyholders that prevent immediate loss of insurance coverage.

Regulations related to insurance grace period, such as how long it should last, are managed differently. Let’s talk about how the insurance grace period works with the help of an example –

Mr. Sethi bought a health insurance policy that expired on Sep 1, 2020, as he missed paying the premium by the due date. It happened because he lost the job and could not pay the premium as ever before.  

Keeping that in mind, the chosen insurer gave him an insurance grace period of 15 days (till (Sep 26, 2020) to make the required payment. He made the most of this feature related to the policy and paid the premium in this insurance grace period to continue enjoying the coverage

Some other facts related to the insurance grace period that you should know are:

  • The death claims raised after the insurance grace period can get rejected by the insurer if you fail to pay the premium within this time period
  • Other benefits of your insurance policies, such as No Claim Bonus and waiting period for pre-existing illnesses, become invalid after the insurance grace period lapses
  • All insurers want the insurance grace period to be as minimum as possible to be on a safer side.
  • After the insurance grace period ends, a policy may get cancelled due to non-payment, which can be detrimental to you

Grace Period for Life Insurance Policies

In general, most life insurance policies come with an insurance grace period of thirty days from each premium's due date. In some cases, it also depends on the mode of premium payment chosen. For instance, the insurance grace period is fifteen days for life insurance policies bought with a monthly premium payment option. 

Grace Period for Life Insurance Policies

In general, most life insurance policies come with an insurance grace period of thirty days from each premium's due date. In some cases, it also depends on the mode of premium payment chosen. For instance, the insurance grace period is fifteen days for life insurance policies bought with a monthly premium payment option. 

 

You should also know that:

  • During the insurance grace period, life insurance companies accept premiums without interest
  • The insurance coverage continues during the insurance grace period as per the policy terms
  • In case the life insured dies during the insurance grace period, the insurers are entitled to deduct the unpaid premiums from the death benefits payable under the life insurance policy
  • Not paying the premium during the insurance grace period results in policy lapse. However, you can still benefit from revival period, which starts from the date of first unpaid premium. The insurer is entitled to approve or reject the policy revival application
  • Lastly, suppose you do not revive a lapsed policy during the revival period. In that case, it will terminate or get discontinued, and you may not get any value in terms of insurance benefits after the life insurance revival period ends. However, you may still get the applicable surrender value, depending upon the plan terms and conditions.

Drawbacks of Not Paying Premiums on Time

There are many disadvantages of not paying insurance policy premium timely even after the insurance grace period, irrespective of the policy type.

1. Loss of Insurance Coverage

The benefit of an insurance policy is realized when you file a claim. In case you fail to pay the insurance premium on time or during insurance grace period, the claims you raise may be considered invalid, thereby making you lose the coverage under your policy. 

Drawbacks of Not Paying Premiums on Time

There are many disadvantages of not paying insurance policy premium timely even after the insurance grace period, irrespective of the policy type.

1. Loss of Insurance Coverage

The benefit of an insurance policy is realized when you file a claim. In case you fail to pay the insurance premium on time or during insurance grace period, the claims you raise may be considered invalid, thereby making you lose the coverage under your policy. 

 

2. Loss of Coverage for Pre-Existing Illnesses

Certain insurance policies offered by different insurers invalidate the inclusion terms related to pre-existing disease coverage on not paying premiums timely, by the end of insurance grace period maximally. They may require the policyholder to serve the waiting period stipulated in the policy contract again.

3. NCB Loss

General insurance plans like health insurance or motor insurance benefit policyholders in the form of No Claim Bonus (NCB) for every claim-free year. One possible after-effect of not paying premiums till the end of insurance grace period is the loss of NCB.

4. Loss of Waiting Period Meant for Critical Illnesses

Many critical illnesses, such as kidney failure, cancer, or heart attack, have a waiting period, after which you can avail of insurance benefits for the same. This happens to both health insurance as well as life insurance paired with critical illness riders. An individual’s inability to pay the premium during the insurance grace period may make them go through the waiting period again.

5. Higher Cost of Renewing a Lapsed Policy

In general, an individual need to buy a new insurance policy after the existing one has lapsed. It also implies loss of NCB or other benefits that lower the renewal premium, thus resulting in a higher expense. Also, the insurers may ask for penalty charges during the insurance revival stage as per their internal policies.

6. Portability Loss

In some types of general insurance policies, you get the provision to change the existing insurer and port your policy to your choice insurance company. However, when your policy lapses because of the non-payment of premium till the end of insurance grace period, you lose this provision.

What Happens After Insurance Grace Period is Over?

As detailed above, there can be several drawbacks of not insurance premium till the due date, let alone till the insurance grace period ends. Particularly for life insurance policies like a term plan, not paying premiums during the insurance grace period means compromising with financial protection you have planned for your loved ones.

A lapsed life insurance policy comes with a huge loss for a policyholder as he/she loses the entire sum of all premiums paid earlier. Alongside, his family loses the financial support they would otherwise get under the policy.

What Happens After Insurance Grace Period is Over?

As detailed above, there can be several drawbacks of not insurance premium till the due date, let alone till the insurance grace period ends. Particularly for life insurance policies like a term plan, not paying premiums during the insurance grace period means compromising with financial protection you have planned for your loved ones.

A lapsed life insurance policy comes with a huge loss for a policyholder as he/she loses the entire sum of all premiums paid earlier. Alongside, his family loses the financial support they would otherwise get under the policy. 

 

Should You Revive a Lapsed Life Insurance Plan? 

Every insurance company in India provides the option of policy revival to their policyholders, though the related terms and conditions may differ from one another. Other than the insurance grace period, the policyholders get a revival timeframe, which may last up to two/three years as per policy terms and conditions It is when they need to shell out money to be paid as policy revival fees, interest charges, and medical test expenses.

It is at this stage after the insurance grace period that many people feel confused about choosing any of the two options – revive the existing policy or buy a new one. Being unable to pay the premium till the insurance grace period is something that can happen to anyone.

It is time to make an informed decision that will impact the insurance coverage for the future. Consider the total costs involved in reviving and buying a policy, and then compare them to arrive at a conclusion.

Frequently Asked Questions (FAQs) 

Q. How long does the insurance grace period last? 

A. The insurance grace period last as long as thirty days, depending on the insurance plan and type of premium payment you choose. Make sure you check the policy contract for further details about the insurance grace period.

Q. What is the difference between waiting period and insurance grace period? 

A. Waiting period in insurance is the time for which you need to wait before making any claim under the policy. On the other hand, the insurance grace period is the additional time given to policyholders to pay premium after the due date.

Q. Can I pay term plan premium after the insurance grace period ends? 

A. When the grace period for term life insurance expires, the policy lapses. However, it marks the beginning of revival period, which differs from one insurer to the other. If you could not pay the premium during the given grace period in term insurance, you can revive the lapsed policy by paying accumulated premiums with penalties.

Q. Can I pay the term insurance premium in advance?

A. Yes. It is possible to pay term plan premium in advance. Ask your insurer about the related steps. This will help you avoid facing the risk of policy lapse post grace period in term insurance.

Q. What was additional insurance grace period given during lockdown in India? 

A. Keeping the unprecedented lockdown arising from the Global Coronavirus pandemic, IRDAI announced an additional insurance grace period for life insurance policies up to May 31, 2020. This extension of grace period for term life insurance and other types of life insurance was for those who could not pay the premiums due in Mar 2020. 

 

ARN: Mar21/bg/2