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Insurance Premium Payment

Missing the premium payment date does not mean you have to cancel your insurance policy. Check out its status with your agent and get it revived

OPTING for the right insurance cover is like taking your first step towards financial planning. But if you want to keep this security cover intact then you need to be financially disciplined and make those timely payments towards the premium amount. Many times because of sheer negligence or unforeseen circumstances, you miss upon making the payments on time. And when you find those bills, reminders stacked in one corner of the house, you are not sure whether to make a call to the company and revive your policy or simply let it go. Well, if you have been deliberating the same, here is a lowdown on how you can revive your policy.

THE PROCESS

There is a misconception that once you miss your due date for paying premium, the insurance company cancels the policy. It is advisable that before you decide to forego your policy, you should check out with your agent or the insurance company what’s the status of your policy. All insurance companies give a grace period of 30 days after the due date.

Nonetheless, even then if you are not able to utilise this grace period, it doesn’t mean that it’s all over. You can revive the policy till six months from the due date (including grace period) is over. You will be required to pay interest on outstanding premium amount as penalty. The interest, in our case, is 10.33% per annum or higher depending upon the policy that you hold and this vary from company to company and policy to policy. Any policy can be revived during the life time of the life assured, but before the date of expiry of policy term. You need to submit proof of continued insurability to the satisfaction of the insurance company and make the requisite payments of all the arrears of premium together with interest to revive your policy.

OLD V/S NEW

If you believe that reviving the old policy is not a good idea, then you are wrong. Financial planners believe that under no circumstances, you should discontinue the old policy and apply for a newer one. A person who defaults on a policy payment is generally in financial lurch. You need to take into consideration age factor, since you bought your old policy at a young age so the benefits acrrued till date will go away if you take a new policy. Same is the case with ULIPs where the commission charges are higher in the first few years and lesser amount is invested.

This theory doesn’t holds true if the policy has been in a state of lapse for over five years, reviving may not be the best option. “If a policyholder wants to revive a policy after five years, we suggest that he take up a new policy, since the fine on premium may be very high by that time.

In case of a pure term policy, if the premiums are not paid within due date and the grace period of the policy lapses, then in case of a death claim nothing is payable to the nominee of the policyholder. But if you hold a unit-linked policy, ULIP, the rules are different. In ULIPs, a portion of your premium is deducted as a payment towards your life cover or sum assured, a part of it is used for administrative charges and the rest is put into your fund account. In case of death during the term, the higher of sum assured and fund value is paid out. If premiums are paid for less than three full years, the risk cover will cease immediately at the end of the grace period. However, applicable charges are recovered (except mortality charges) from the fund till the end of the revival period. But if the premiums are paid for at least for three full years — the risk cover will continue till the end of the revival period and all applicable charges will be recovered from the fund.

TAKE THAT BENEFIT

In case of conventional polices like endowment, money back, and whole life policies, if the payment of premium ceases after three years the policy automatically becomes a paid-up policy and acquires a paid value, wherein the sum assured is reduced proportionately and the bonuses declared till date. Such reduced paid-up policy is not entitled to participate in the bonus declared thereafter but the bonuses already declared on the policy will remain attach, provided the policy is converted in to a paid-up policy after the premiums are paid for five years. Therefore if the policy acquires a paid up value in case of death or at maturity the paid value is paid to the policyholder.

However, in ULIPs as long as there is sufficient fund in your ULIP account to sustain the cost of insurance, the policy continues and in case of death the fund value or the sum assured, which ever is higher, it is paid to the nominee of the policyholder. Hence, it is in your interest that even if you’ve not been able to make the payments on time, you should check with your insurance company about the benefits that you still can avail.

CHECK IT OUT

All insurance companies give a grace period of 30 days after the due date

Any policy can be revived during the life time of the policy assured, but before the date of expiry of policy term

If the premiums are paid at least for three full years — the risk cover will continue till the end of the revival period

If a policyholder wants to revive a policy after five years, he would be better off, taking a new policy, since the fine on premium may be very high by that time

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