What Happens if You Miss a TROP Premium Payment?

TROP (Term Return of Premium) policies offer you a comprehensive life cover during the policy term and a refund of premiums in case of survival. While this policy comes with certain conditions, a little foresight goes a long way. Missing a TROP premium payment can lead to lapses in coverage. This, staying informed and proactive, helps you avoid last-minute stress, also ensuring you don’t risk losing your coverage and the money invested over the years.

TROP (Term Return of Premium) policies offer you a comprehensive life cover during...

What is a Missed Premium Payment in TROP Policy?

Missed premium payment in the TROP policy occurs when the policyholder fails to pay the scheduled premium (on the due date specified). TROP policies are a type of term insurance, wherein the total sum of the premium paid is returned if the insured survives the entire policy term. However, if a premium payment is ever missed, the policy risks lapsing. Always remember that missing a premium payment is considered an important matter in any life insurance.

How Missed Premium Payment Works in a TROP Policy

If a policyholder misses a scheduled premium, the insurance company does not immediately terminate the policy. There is generally a grace period, the length of which depends on your policy terms. During this period, the policy remains active, and claims are typically honoured.

If the premium still remains unpaid when the grace period reaches expiration, it may result in two scenarios.

First, the TROP policy may lapse. Always remember that not all TROP policies handle lapses identically, so always refer to the specific policy document.
Second, you can usually revive a lapsed TROP (Term Return of Premium) policy, but there are specific conditions and time limits. Keep in mind that a lapsed policy that is not revived results in loss of both coverage and refund eligibility. This revival process usually involves paying all overdue premiums, and you may also require a health declaration or medical examination.

What Happens if You Miss a TROP Premium Payment

Missing a premium in a TROP, more than affecting your risk coverage, impacts your investment outcome. Here are the common consequences:

Loss of Life Cover

When a premium is not paid within the grace period, the policy may lapse. In case the policyholder passes away during the lapsed period, your insurer or the insurance company is not liable to pay the death benefits. Simply put, your nominee will not receive the monetary benefits (originally intended) even if you paid premiums for a certain period.

No Refund of Premiums if Policy Lapses

What makes the TROP policy most attractive is the refund of premiums in case you outlive the policy. However, once your policy lapses, you’re no longer entitled to the benefits. In TROP, when policy lapses due to non-payment of the premium and if not revived within the revival window, the maturity benefits remain void. This means you lose the money you invested and forfeit your savings.

Penalties or Health Reevaluation

In case you decide to reinstate your policy after a missed payment, there’s quite a hassle. You may need to comply with additional steps, such as:

Medical Underwriting: Most insurers require new medical tests when reviving or reinstating a policy. It is usually done to account for any changes in the health status. The tests may become extensive if significant time has passed since the policy lapsed.
Higher Premiums: Given the change in health status, premiums increase. Insurers may charge you more if your health has dropped significantly compared to where you previously stood.

Tax Implications

Most importantly, a lapsed TROP policy affects your tax benefits. In most cases, if you pay premiums timely, you can claim them as deductions under Section 80C of the Income Tax Act, thereby reducing your taxable income. If your policy lapses due to missed premiums, you lose this benefit. You cannot claim the unpaid premiums at all.

Also, in TROP, the maturity benefits are usually tax-free, given the policy has remained active for a certain period. If your policy lapses before that period, any money you receive is usually taxed.

Disrupted Financials

TROP offers dual benefits, including life cover and guaranteed return if you outlive the policy. A single non-payment of premium may result in your policy lapsing without any refund of premiums. It is a major financial decision. You want to make sure that your every decision results in the best benefits.

When It Matters Most

This matters most when:

You are close to the maturity of the policy, where even a single lapse means losing out on maturity benefits.
Return of premium is your fallback option, providing financial protection for your retirement or other long-term financial goals.

Missed Premium Payment in TROP: Who Will This Affect

A missed premium payment in TROP will affect both the policyholder and the insured.

If the policyholder and insured are the Same Person:

The policyholder incurs financial loss if the policy lapses and can’t be revived. There will be added emotional or financial consequences if the policy is part of estate or legacy planning.

If the policyholder and insured are not the same person:

The insured/life assured loses protection and long-term financial planning built into the policy. Death during the lapse period may result in no payout to the nominees.

Let’s understand this with a real-life example.

Let’s say Arun, 38, a salaried professional, has a 20-year TROP policy with an assured sum of ₹20 lakhs. He paid the premium regularly for 7 years but missed the payment for the 8th year due to financial constraints and a job change.

But he somehow managed to pay the premium before the expiry of the 30-day grace period. Had Arun missed this payment completely, his TROP would have lapsed, potentially forfeiting both life cover and return of all premiums after 20 years.

How to Revive or Reinstate Your TROP Policy

If your policy lapses due to non-payment, most insurers allow a revival window (the window varies by insurer) from the last unpaid premium.

Revival Process:

Contact your insurer as soon as possible.
Fill out a revival form and submit the pending premiums.
Undergo medical tests, if required

How to Avoid Missing Your TROP Premiums

Here are a few preventative measures you can take to avoid missing your TROP premium payments.

Set up auto-debit mandates from your bank.
Set calendar reminders or SMS alerts for a few days before your due date.
Make sure the premium due dates align with or within the range of your pay date.
If managing monthly payments is challenging, then switch to annual payments.
Use your insurer's app to track due dates and for timely payments.

Conclusion

Missing a premium in your TROP policy may seem minor, but it can have major consequences. From lapsing life cover to forfeiting return of premiums paid, the financial setbacks can be serious. With such high stakes, you need to be informed of policy terms in detail so as to take the right steps in case of a missed payment. However, insurers offer a grace period and a revival option, so timely action can save your policy.

frequently asked questions

Is a return of premium insurance more expensive than regular term plans?

Yes, TROP premiums are generally 1.5-3 times more expensive than regular term plans. It is because they include a maturity benefit (return of premiums feature) in addition to life cover.

What is the full form of TROP in insurance?

TROP stands for Term Plan with Return of Premium. It is a type of term life insurance where all premiums are refunded at maturity if the insured survives the policy term.

What is a limited premium payment in a TROP policy?

It’s a payment option where you pay premiums for a fixed number of years (e.g., 10 or 15), but the life cover continues for the full term. Missing a premium in this has stricter consequences.

Is 60 years a feasible premium paying term in TROP policies?

While possible, a 60-year PPT may result in very high cumulative premiums. Missing a premium late in such a long policy could impact both the life cover and maturity return.