A life insurance policy is an agreement between an insurance company and a policyholder with an assurance that the former will pay the latter a fixed amount. It is subject to the condition that the policyholder has made timely payments of the premium.
The payments could be made yearly, half-yearly, quarterly, or monthly. However, there is a possibility that the policyholder has not made one of the payments on time. It is here that the concept of grace period in a life insurance policy comes into the picture.
What is a grace period in a life insurance policy?
At times, people might forget or not be able to pay the premium due to financial constraints. Companies allow some additional time, known as a life insurance grace period when the policyholder happens to miss their premium payments. In case the policyholder fails to pay during the grace period as well, the insurance company has the right to cancel the policy or penalize the policyholder.
The grace period is a fair chance given to the policyholder if he could not make the payment due to circumstances. Most insurance companies provide a grace period of 15 days. However, some companies put the grace period as 30 days as well.
Is the grace period similar to the waiting period?
The waiting period for an insurance policy is not the same as the life insurance grace period. If you are a new member, you need to wait for a predetermined duration before you can file a claim to the health insurance company. However, the grace period is the duration within which the policyholder can pay the renewal premium of the health insurance even after the due date has passed.
For example, say the renewal premium of your medical policy is due on 1st July, and you have a grace period of 30 days. If you do not make the payment within 30 days, the insurance company can deny your request to renew the policy even if you want to pay the premium on 1st August.
Paying the premium during the grace period
If the policyholder misses the regular premium due date, the insurance company may or may not charge a late fee for payment during the grace period. Furthermore, if the policyholder is missing the deadlines too frequently, the company might start charging higher fees for the late payment. However, the method of late fee calculation might not be the same for all insurance companies or all insurance policies.
Disadvantages of not renewing your policy on time
A policyholder must pay the regular premiums to renew the policy on time. Below are a few of the drawbacks if you fail to renew the policy on time-
- The company might deny the renewal: As you did not renew the policy on time, the insurance company is well within its rights to not renew your health insurance policy. Thus, you will have to buy a new life insurance policy, and as a result, you will lose the coverage benefits until you buy a new plan.
- No benefits during the grace period of the policy: Since you did not pay the premiums on time, you will not have the option of filing a claim or avail coverage benefits during the life insurance grace period.
- No coverage of pre-existing diseases: If you happen to take up a new policy, you will be treated as a new customer. You will have to wait for the waiting period to end. Only after the end of the waiting period will the coverage of your pre-existing diseases start.
- It might affect your credit score: If a policyholder pays his premium only during the grace period, it might affect his credit score. A low credit will lead to difficulty in getting loans sanctioned in the future.
Death during the insurance periode
has been maintaining a life insurance policy for the last thirty years with regular on-time payments. Her family shifts to a new location for her treatment, and her unfortunate demise occurs during this period.
When her family makes an insurance claim, they notice that they had missed out on a notification from a bank. The last premium from her insurance had gone unpaid. In such a scenario, the policy enters the life insurance grace period.
Simply put, it will be the difference between the premium due date and the day the policy will lapse. Due to the grace period, the woman’s family could pay the premium and avoid the unfair cancelling of the policy.
Some important points to keep in mind are-
- The assured sum remains unchanged even if the payment is not completed within the due date. Essentially, the grace period is an extension of the regular premium payment mode. Thus, the sum assured does not change for payments made during the grace period.
- Active cancellations can not be made during grace periods. If you are planning to change your insurance provider, you should not cancel the previous insurance till the new plan is in place. If the policyholder cancels the plan, no insurance company will provide any sort of compensation even if an unfortunate event happens the very next day.
- Some deductions may be made. If the death of the policyholder takes place within the life insurance grace period, the insurance company might deduct the last premium from the death benefit. It is to be noted that this is not an additional fee. It is the amount that the policyholder would have paid to keep the plan alive.
- The grace period might vary depending on the payment mode. Usually, the grace period is longer for a life insurance policy with an annual payment mode. It might be smaller for a monthly payment mode or a quarterly payment mode.
You must renew your policy on time if you want to enjoy the coverage benefits of your life insurance policy. It will be advised that you do not wait for the grace period to pay your renewal premium. You should renew your policy well beforehand. Otherwise, you might have to start a new policy all over again.