Learn about the grace period in term insurance policies and how it provides a safety net for late premium payments.
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Term Insurance (TI) is a type of life insurance that provides financial protection to the family of the insured person in case of their untimely demise. Term plans require policyholders to pay a premium at regular intervals to keep the policy in force. However, due to various reasons, policyholders may miss paying the premium on time. This is where the concept of grace period comes in.
A grace period is a specific duration of time after the due date of a premium payment when the cover remains active, even if the premium has not been paid. In other words, it is a period during which the policyholder can pay the premium without any penalty or interest. The duration of the grace period varies from one insurance company to another and depends on the premium payment frequency.
If the policyholder fails to pay the premium even after the grace period, the policy will lapse. The policyholder will no longer be covered, and the benefits provided by the policy will no longer be available to them or their beneficiaries. However, some insurance companies offer a revival period, which is a specific duration of time during which the policyholder can revive the policy by paying the outstanding premium along with interest.
The grace period is a critical component of Term Insurance policies because it provides policyholders with a window of opportunity to make the premium payment and keep the policy in force.
Without a grace period, policyholders who miss paying the premium on time would have their policy lapse sooner, and the benefits provided by the policy would no longer be available to them or their beneficiaries.
Therefore, grace period ensures that the policy remains in force for some time even after a lapse in premium payment and that policyholders have adequate uninterrupted coverage for their loved ones.
Let's understand the concept of grace period with the help of an example. Mr. Kumar has a TI policy for which he pays an annual premium of Rs. 10,000. The due date for the premium payment is 1st January every year. However, Mr. Kumar forgets to pay the premium by the due date. In this case, Mr. Kumar has a grace period of 30 days, which means that he can pay the premium by 31st January without any penalty or interest. If Mr. Kumar fails to pay the premium by 31st January, his policy will lapse, and he will lose the benefits provided by the policy.
Premium Payment Frequency
Please note that this is the general scenario. An insurance company may have different schedules of grace periods. You are advised to check the respective company website for the accurate grace period schedule.
If the policy lapses due to non-payment of premium, the policyholder has two options: revive the lapsed policy or buy a new plan.
Reviving a lapsed policy involves paying the outstanding premium along with interest and, in some cases, providing a health certificate. The cost of reviving a lapsed policy is generally lower than buying a new plan, and the policyholder retains the benefits and features of the original policy. However, if the policyholder has developed any pre-existing illnesses after the policy lapse, the insurance company may reject the policy revival.
Buying a new plan involves undergoing the underwriting process again and paying the premiums as per the current age and health condition of the policyholder. The cost of a new policy may be higher than reviving the lapsed policy, and the policyholder may lose the benefits and features of the original policy.
This table summarises the comparison between reviving a lapsed policy and buying a new plan. The policyholder should weigh the costs, benefits, and underwriting requirements of both options before deciding.
Revival of Lapsed Policy
Buying a New Plan
Lower (outstanding premium + interest)
Higher (premium as per current age and health condition)
Retains benefits and features of original policy
May lose benefits and features of original policy
No need to undergo underwriting again
Needs to undergo underwriting again
Coverage may be rejected
May cover pre-existing illnesses based on the insurer's policy
The waiting period is a specific duration of time during which the policyholder cannot make a claim for a particular illness or condition. On the other hand, the grace period is a specific duration of time during which the policyholder can pay the premium without any penalty or interest.
If the grace period has ended, some insurance companies offer a revival period, during which the policyholder can revive the policy by paying the outstanding premium along with interest.
Yes, policyholders are allowed to make an advance payment of their Term Insurance premium for a specific duration of time, which is usually up to one year. Some insurance companies even offer discounts for advance premium payments.
Yes, the policyholder can claim the benefits if they pay the premium during the grace period. However, it is advisable to pay the premium within the due date to avoid any inconvenience.
If the policyholder passes away during the grace period, the death benefit will be paid to the beneficiaries as per the policy terms and conditions. However, the outstanding premium will be deducted from the death benefit before it is paid out.
Generally, insurance companies do not have a limit on the number of times a policy can be revived after it lapses. However, the revival process may become more difficult and expensive after multiple lapses, and the insurance company may require additional documentation or medical check-ups before approving the revival. It's always advisable to pay premiums on time to avoid lapsing of the policy.
Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.