Table of Contents
- a. What is a Grace Period?
- b. What are the Regulations in Grace Period?
- c. what is an example of a Grace Period?
- d. What is a Policy Lapse?
- e. What is an example of Policy Lapse?
- f. What is the time period of the Grace Period?
- g. Is the time period of the Grace Period constant?
- Traditional Insurance policies:
Grace Period in Life Insurance Policy
Shiva`s father was admitted to the hospital last night as he had suffered a severe heart stroke. Unfortunately, he could not survive. When Shiva made an insurance claim, he realized that the last premium have gone unpaid and the policy is now in lapsed status.
His father was paying the premium for Term Insurance for the last 20 years. Since he was unwell for some time, he could not pay the premium on time.
As the policy was in -half-yearly mode, notice was also sent to pay the premium in the grace period. Now the grace period was also over.
What is the grace period for a life insurance policy?
What happens when you do not pay your premiums or payments on time? What will happen if a Policyholder dies within the Grace Period or after the Grace Period is over?
Will the Nominee get the claim or will the claim be rejected?
Let’s understand the Grace Period of Life Insurance policies through a series of questions!
a.)What is a Grace Period?
Grace Period is the extra time you get to pay your premiums after the due date is over. (Definition by Investopedia)
b.)What are the Regulations in Grace Period?
There are no written regulations about the grace period. Insurance companies give a grace period as a part of good servicing to the customers.
You also get reminders from the Insurance Company if your premium is due (normally in the case of Quarterly, Half-Yearly, and Yearly modes). For Monthly policies, most companies now accept ECS only.
c.)What is an example of a Grace Period?
If your premium due date is 8th December 2024 (yearly mode) and you have not paid your premium on time, you still have 30 days/1 month to pay your premium before your policy lapses.
d.)What is a Policy Lapse?
A Policy Lapse would mean that your Beneficiary/Nominee will not get any benefits if something happens to you.
e.)What is an example of a Policy Lapse?
Suppose, the death of the Policyholder happens on 25th December 2024, Beneficiary/Nominee will get the sum assured after deducting the unpaid premium for the year.
If the death of the Policyholder happens after 30 days/1 month, the Beneficiary/Nominee will not get any benefits. The claim will be rejected.
f.)What is the time period of the Grace Period?
- Grace Period is different for different Modes of Time
- Monthly payments – 15 Days
- Quarterly payments – 30 Days/1 Month
- Half-Yearly payments – 30 Days/1 Month
- Yearly payments – 30 Days/1 Month
g.)Is the time period of the Grace Period constant?
No, The time frame for the grace period is also different for different companies. Some companies say it’s 30 days, and some others quote it as one month.
It differs from company to company on how they calculate the 1 month period since February has 28 days and some months have 31 days too.
Premium Not Paid in Grace Period – What Can You Expect?
Regardless of the type of coverage, there are numerous drawbacks to paying insurance premiums after the insurance grace period.
1. Loss of Insurance Coverage
If you don’t pay your insurance payment on time or within the grace period, your claims could be deemed invalid, which would result in you losing your policy’s protection.
2. Loss of Protection for Existing Conditions
When payments are not timely paid by the end of the insurance grace period, certain insurance plans supplied by various insurers invalidate the inclusion terms pertaining to pre-existing disease coverage.
3. Higher Cost of Renewing a Lapsed Policy
In general, an individual need to buy a new insurance policy after the existing one has lapsed.
The Special considerations available in Grace Period
Any agreement that specifies a grace period also must specify what will happen if the payment is not made by the end of the grace period.
Penalties can take the form of late payment fees.
Which plans give policyholders a grace period?
Traditional Insurance policies:
Whole life insurance, endowment plans, and money-back are examples of classic life insurance policies that offer a grace period. However, the length of such a time depends on how frequently premiums are paid.
For instance, policies with monthly premium payment options offer a 15-day grace period whereas those with annual and semi-annual premium payment options offer a 30-day grace period.
The grace period for term insurance policies and health insurance policies from life insurers is 15 days.
ULIPs are market-linked products with a five-year lock-in term.
ULIPs also provide a Grace period, but however, it differs differently due to their structure. We will discuss the ULIP grace period Later.
1. Traditional Insurance policies:
Let’s understand the Grace Period of Traditional Insurance Policies through LIC.
Grace Period in LIC
i.)What is the grace period to Pay LIC Premium?
A grace period of 30 days will be allowed for payment of Yearly or Half-Yearly or Quarterly premiums and 15 days for Monthly (through ECS) premiums.
You also get notice one month in advance to pay your due premium.
Not all companies give you a grace period of 30 days in Term Insurance policies even for a yearly mode. Some companies do provide a grace period of 15 days in Term Insurance policy.
ii.)When a policyholder dies during Grace Period, how unpaid premiums are deducted at the time of Claim Settlement?
All the unpaid premiums for the year will be deducted while settling the claim.
Suppose, there are four people who have bought Term Insurance cover of Rs. 1 Crore with different payment modes. All the policies were issued on 8th December 2013.
|Person||Sum Assured||Mode||Premium||Premium Due date|
|A||1 Crore||Yearly||Rs. 10000||8th December 2024|
|B||1 Crore||Half-Yearly||Rs. 5000||8th December 2024|
|C||1 Crore||Quarterly||Rs. 3500||8th December 2024|
|D||1 Crore||Monthly||Rs. 1000||8th December 2024|
- “A” does not pay the premium and died on 25th December 2024;
Claim settlement amount would be Rs. 1 Crore – Rs. 10,000
- “B” pays the premium on 8th December 2024 but forgot to pay his next premium which is due on 8th June 2025 and he dies on 15th June 2025;
So the Claim settlement amount would be Rs. 1 Crore – Rs. 5,000
- “C” pays the premium on time on 8th December 2024 and dies on 25th December 2024;
Therefore the Claim settlement amount would be Rs. 1 Crore – Rs. 3,500 x 3 (the 3 Quarterly due)
- “D” pays the premium on 8th December 2024 but forgot to pay his next premium which is due on 8th January 2025 and he dies on 15th January 2025;
Hence the Claim settlement amount would be Rs. 1 Crore – Rs. 11,000
How to Surrender your LIC Policy? | LIC Surrender Process before Maturity| Youtube|
2. Grace Period in ULIPs
i.)Are the rules of the Grace Period in ULIP policies different?
Normally, the rule is the same for ULIPs as in the case of traditional policies, but in some ULIPs, you have an option of auto cover.
Auto cover is when you stop paying the premium and still your policy is not lapsed. The company automatically deducts the amount from the fund value to cover the mortality charges.
ii.)Is this the same for allULIP investments?
No, it depends from company to company and product to product.
Some insurance companies require written consent from the customer to deduct the mortality charges from the fund value. Also, there is a limit to paying minimum premiums like for 1 year, 2 years, 3 years, or 5 years.
There is no insurance grace period after the termination of a policy.
You can discover “How to Cancel Your Life Insurance Policy?” from our detailed blog post.
We have seen how the Grace period is good for people who are not able to pay their premiums on time and also on the other hand, it is a danger for people who are lethargic even inspite of having the required money.
Do not wait for the reminders to pay your premiums. Pay on time, it will help you to become a disciplined investor.
Please feel free to ask if you have any other questions about the grace period for a life insurance policy.