Nowadays, life insurance in India is a necessity, not a luxury. Given the rising inflation rates and the high cost of living, healthcare, and access to other services and amenities, it is wise to get life insurance in India. Life insurance is a financial product that can help you fulfil various financial goals, like securing your family in your demise, saving money for your goals and emergencies, and creating wealth in the long run.
There are various types of life insurance in India, of which term insurance is the most popular. The workings of a life insurance policy are simple. However, there are a lot of terminologies you need to know beforehand before purchasing a life insurance plan. Some of the most crucial terminologies include a grace period, policy free look period, life insurance premium, and others. Read on to know what these mean and why knowing their meaning is integral in the purchase process.
What is the Grace Period in Insurance?
To avail of the features of life insurance, you have to pay a specific sum of money called a life insurance premium in periodic payments. Depending on the insurer, you can pay these premiums every month/ year or in a one-time lump sum. Only when you pay the life insurance premium you can unlock the monetary benefits under the life insurance policy.
If you miss any premium payments, the life insurance policy will lapse, and you will lose out on the benefits provided. However, sometimes for unforeseeable reasons, you might miss paying the life insurance premium. For instance, a sudden job loss, medical emergency, or any other financial obligation could come in the way and stall the payment of your life insurance premiums.
During such a crisis, it is understandable that you might require a reasonable timeframe to pay the premiums. Insurance providers understand these reasons and provide a window for making up the missed premium payments. This window or timeframe is called a grace period or insurance premium grace period.
How Many Days Late Can You Pay Insurance Premiums?
Once you know the grace period insurance meaning, it is crucial to know the standard grace period for the insurance policy. Generally, the grace period during which you can pay the life insurance premium ranges from 15 to 30 days.
During this period, insurers will remind you of the pending payment and might inquire about the reason for the delay. Once this period expires, your insurance policy will lapse, and you will stand to lose out on the benefits. So, even if you make a life insurance claim after the grace period for the insurance policy expires, the insurer has the right to reject the insurance claim.
What Happens if You Don’t Adhere to the Grace Period For Insurance Policy?
If you don’t stick to making timely premium payments, the major consequence would be losing out on the benefits under the life insurance policy. The benefits you can lose include:
Loss of life insurance coverage:
One of the foremost benefits you lose on the expiry of a grace period is the life insurance cover provided under the life insurance plan. So, in the unfortunate eventuality of your death, your family would not receive a death benefit payout as promised because of the failure to pay the life insurance premium.
Higher policy renewal costs:
Once the grace period is over and your life insurance policy expires, you have the option of renewing it but not without making up for the missed payments. These include charges like penalty and revival fees, after which your insurance policy gets renewed.
What Can You Do If the Insurance Policy Grace Period Expires?
Once the insurance policy grace period expires, insurers offer a revival period during which you can revive or reinstate the insurance policy. The reinstatement/ revival period often lasts for up to two years, after which the insurer considers the insurance policy as 100% lapsed. If the policyholder wants to revive the life insurance policy, they will have to pay the entire pending premium instalments. They might also have to pay penalty fees for late-payments and the process of reinstating the life insurance policy. The policyholder will also have to undergo fresh medical tests and start the application process from scratch to successfully revive the insurance policy.
Is the Free Look Up Period the Same as the Grace Period in Insurance?
A free look period in life insurance is different from a grace period. It is the time frame given to the insured to see if a specific life insurance policy is working out for them. During the insurance policy free look period, a buyer can buy the insurance policy and terminate it as well for any reason. The termination of life insurance does not attract any penalties or surrender charges, and the insurer does not consider it a violation of the contract between them and the policyholder. The free look period varies from insurer to insurer but generally ranges from 10 days to 30 days. The free look period in a Tata AIA Life policy is 15 days.
The grace period in any life insurance policy exists to relieve the buyer/ policyholder from a missed or late payment due to any valid reason. Insurers happily offer this grace period to their buyers because they want what is best for them. However, given the high level of financial liability insurers carry, they have to take precautions and appropriate actions against an unreasonable or indefinite delay in payments. Before finalising a life insurance policy, discuss the grace period window and other charges with your insurer.