What is a Premium Holiday in Life Insurance?

Paying premiums regularly is essential to keep your life insurance policy active. But if you face a temporary financial crunch, some policies, mainly ULIPs, offer a feature called a premium holiday. A premium holiday lets you stop paying premiums for a short time, while your policy stays active as long as it has enough fund value to cover the charges.

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Key Takeaways

Premium holiday = temporary break from paying premiums.
Allowed only in certain life insurance plans, usually ULIPs.
During the holiday, charges may still get deducted from your fund value.
It helps if you’re facing short-term financial stress.
Taking too many holidays can shrink your fund value and may even risk policy discontinuation.

Premium Holiday in Life Insurance

A premium holiday is a feature in some life insurance policies (mainly Unit Linked Insurance Plans, or ULIPs) that lets you temporarily stop paying premiums after completing a minimum lock-in or payment period. Your policy does not lapse immediately during this break, but the insurer may continue deducting applicable charges, such as mortality or fund management charges, from your fund value.

It’s a planned break from payments while your coverage and investment stay in force, though your fund value may reduce if the break lasts too long, since charges keep getting deducted.

How Does a Premium Holiday Work?

Here’s the step-by-step process of how it usually works:

Eligibility

Premium holiday is allowed only after you’ve paid premiums for a minimum number of years (commonly 3-5 years, depending on policy terms).

Request

You must formally request the insurer to avail the holiday option.

Duration

The premium holiday is allowed only for a limited time, usually 1-2 years. After this period, you’ll need to start paying premiums again.

Policy Status

During the holiday, your policy remains active. However, necessary charges like mortality or fund management fees are deducted from your fund value or cash value.

End of Holiday

Once the holiday ends, you must resume regular premium payments to ensure your cover continues without limits.

Premium Holiday vs. Premium Due Date

A premium holiday is not the same as missing your premium due date. The due date is your regular payment deadline, while a holiday is a special feature that lets you pause payments temporarily without immediately losing cover.

Feature	Premium Holiday	Missed Due Date

Definition	Planned break in payments allowed by insurer	Payment not made on time
Policy Status	Remains active with charges deducted	Moves to grace period, may lapse if unpaid
Control	Policyholder applies for it	Unintentional or accidental
Impact	Benefits continue but fund value may reduce	Policy lapses if not revived

Premium Holiday vs. Policy Lapse

Many people assume that taking a premium holiday is the same as letting their policy lapse, but they are very different. Here’s how they compare:

Feature	Premium Holiday	Policy Lapse

Definition	A temporary break from paying premiums, allowed by the insurer	Policy ends because premiums weren’t paid on time (even after grace period)
Who Controls It	Chosen by the policyholder (planned option)	Happens automatically if premiums remain unpaid
Policy Status	Remains active; charges deducted from fund value	Coverage stops; no benefits until revived
Impact on Benefits	Cover continues, but fund value may reduce	Cover stops; family won’t receive payout if death occurs
Recovery	Resume premiums after holiday ends	Must go through revival process (extra cost, medicals)

Real-Life Example Scenario

Ananya, 38, has a ULIP with a sum assured of ₹20 lakh and a fund value of ₹3 lakh. After paying premiums regularly for 7 years, she decides to take a premium holiday for 2 years.

Here’s what happens:

During the holiday, no premiums are paid.
Mortality and policy charges continue to be deducted from her fund value.
At the end of 2 years, her fund value drops to ₹2.7 lakh due to deductions and market performance.
Because her fund value was strong enough, the policy stays active.

But if Ananya’s fund value had dropped too low during the holiday, for example, due to poor market returns, the insurer would have issued a notice. Without additional payment or top-up, the policy could have been discontinued or lapsed, since charges couldn’t be covered.

Pros and Cons of a Premium Holiday

Advantages	Disadvantages

Provides flexibility during tough financial times.	Charges continue to get deducted, which in turn reduces fund value.
Prevents immediate policy lapse.	Overuse can decrease your investment growth.
Keeps life cover and policy benefits alive.	Not available in all policies + terms vary by insurer.

Conclusion

A premium holiday is different from a grace period or a lapse. It’s a planned break that works best when you’re aware of how charges will be adjusted during the break. Used wisely, it can be a handy feature to keep your life insurance flexible while still protecting your cover.

Frequently Asked Questions (FAQs)

What is the meaning of premium holiday in life insurance?

A premium holiday is a temporary break from paying premiums, during which your policy stays active and charges are deducted from your fund value.

Does the policy lapse during a premium holiday?

No, as long as your fund value is sufficient to cover charges. If the fund value runs out, the policy may lapse.

Is premium holiday available in all life insurance plans?

No. It’s usually offered in unit-linked insurance plans (ULIPs) or some savings-oriented plans, not in basic term insurance.

What happens to my cover during the holiday?

Your life cover continues, but deductions are made from your fund value to pay mortality and policy charges.

Can I resume premiums before the holiday ends?

Yes, in many policies you can choose to restart premium payments earlier. It’s best to check your insurer’s rules.

Does taking a premium holiday affect maturity value?

Yes, since charges keep getting deducted but no new premiums are added, your fund value may grow at a slower pace, which can affect maturity benefits.

Is premium holiday the same as grace period?

No. Grace period is a short extension (15-30 days) after your due date to pay premiums. A premium holiday is a planned, longer break allowed by your insurer.

What’s the difference between premium holiday and policy lapse?

A premium holiday is a planned break where your policy stays active and charges are deducted from your fund value. A policy lapse happens when you fail to pay premiums (even after the grace period) and there isn’t enough fund value to cover charges. In a lapse, your coverage stops until the policy is revived.

When Can You Use a Premium Holiday?

You can use a premium holiday after completing the mandatory minimum premium payment period. It is helpful if you’re facing a temporary financial crunch, such as job loss, medical expenses, etc., or if you want to keep your policy active without surrendering or letting it lapse.

Written by Neviya Laishram

1.7K Linkedin Followers

Reviewed by Vaibhav Kumar Kaushik

A senior editor with years of expertise, she fine-tunes content that connects, converts, and builds trust. She transforms heavy life insurance concepts into clear, aha-moment reads. Writing is her passion, and thinking ahead is second nature. When not wrangling words, she’s crushing game levels because every challenge is a puzzle waiting to be solved.