Mr. Rao, aged 50, working in a private bank has been in tension for the past 2 days. The reason for his tension was him missing the life insurance premium payment date. Luckily, his policy is not yet lapsed as there is a grace period before which the premium can be paid and the policy would continue as usual. He was worried about the coverage once the life insurance policy lapsed and at this age it would be difficult for him to obtain a life insurance policy again, after undergoing medical checkups.
This made Mr. Rao check for options in a life insurance policy where he could afford to miss premium payment without any effect to his life insurance policy and he stumbled upon two options- Premium break benefit or premium holiday feature add-on and Premium delay life insurance plans which are discussed in details below :-
1. Premium Break Benefit or Premium Holiday Rider: The premium break benefit also referred to as premium holiday rider is an add-on available under the life insurance policy. This add-on can be purchased at the time of taking the life insurance policy. The premium break benefit rider would ensure that you do not lose out on your life insurance policy benefits, if in case you miss a premium payment. The premium holiday rider would prevent your life insurance policy from lapsing and provide you with continued benefits.
Here are the details of the rider:
| How is the rider activated? | On payment of additional premium at the time of life insurance policy purchase |
| How does it work? | If you have missed a premium payment, the rider kicks in to keep the policy active. |
| How many days will my policy be active with this rider? | With this rider, your life insurance policy would be active till the following year. |
| How much should I pay the following year? | You should pay the premium for last year and this year to continue the policy. |
| Are there any fines under this rider? | There are no extra fines or penalties that are to be paid in case of non-payment of premium in a policy period. |
2. Premium delay plans: The other way in which you could prevent your life insurance plan from lapsation is by opting for premium delay life insurance plans in which the premium delay benefit would come as inbuilt.
Here are the details of the plan:
| What does this policy cover? | The premium delay life insurance plan prevents policy lapsation in case of non-payment of premium in a given policy year. |
| How much extra premium should I pay for this? | It is not a rider and therefore there is no extra premium to be paid for this benefit. This is a built-in benefit in a life insurance policy. |
| How is policy continuity in these plans? | If you miss a premium payment, your policy would continue without lapsation. |
| Is there a need to pay a missed premium? | Yes. You should pay the missed premium amount and the current policy period’s amount to continue the policy. |
| Are there any late payment fees? | Yes. There is a nominal delay fee under these plans. |
What’s on this page?
Here’s 2 ways not to miss your insurance premium payment:
Here are the steps to be followed when you do not receive a renewal notice from your insurance company:
1) Automate Payments:
The first option to prevent missing premiums is to automate your insurance premium payments. This can be done by giving a mandate to your bank so that the premium would be deducted every year automatically for policy renewal. But, remember that the mandate would be deducted every year automatically and in case you cancel your policy, the mandate should also be canceled.
2) Date tracking:
The other alternative way for automated payments is to manually track and remember the dates of all your insurance policy renewals and then renew the policy well before the expiry date. This requires considerable effort as you need to note down the dates somewhere visible and then renew your policy before the expiry date.
Conclusion:
Insurance companies have bought a rider and a built-on option of availing life insurance coverage even after the non-payment of premium for a certain period. However, these options are to be availed only if you are in a situation where you are unable to pay the premium due to certain circumstances. For example, most of the policyholders taking life insurance plans would dis-continue the premium payment at the time of first or second renewal as they would not be able to pay such heavy premiums every year and in such situations, these riders would be very helpful as it would provide extra time for the policyholders.
FAQs
1. What happens when you don’t pay a premium on time?
When you don’t pay your insurance policy renewal premium on time, the policy would lapse. If a policy is lapsed, in most cases, you would lose out on all the benefits accumulated under the policy.
2. Is there any penalty to reinstate lapsed policies?
Yes. In general, there is a penalty to be paid for reinstating a lapsed insurance policy. The penalty would be in addition to the unpaid premium in the previous year(s). Penalty is usually calculated based on the amount of premium outstanding under the policy and this penalty should be paid in addition to the current year’s policy premium.
3. Which one is better- premium benefit rider or premium delay insurance plan?
It depends on the needs and requirements of the insured customer. One is a rider and the other has the in-built benefit. So, in short, both of them offer the same benefit in an insurance policy.
4. What happens when I take a premium benefit rider?
A premium benefit rider would get activated when you miss the renewal premium payment and would help in policy continuation till the next premium is paid. It is to be remembered that the rider would be active only till the next renewal date and any outstanding premiums should be paid within those periods to avoid complete lapsation of the policy.
5. What is the need to take premium benefit riders when there is a grace period in an insurance policy?
The grace period is valid only up to 30 days from the date of expiry or renewal of the insurance policy and if the renewal payment is not done within the grace period, your insurance policy would lapse. On the other hand, a premium benefit rider would help to continue the coverage till the next renewal period, which is 1 year. So, the premium benefit rider provides coverage for a longer period compared to the grace period.
