Life Insurance: Understanding Grace Period

Published by Sharekhan Education | June 11, 2021

Life Insurance: Understanding Grace Period

“Oh!Oh! How careless of me! Exclaimed Sheetal; as she realized that she had missed paying her life insurance premium which was due the previous week. A volley of doubts plagued her mind. Now what will happen she thought? Can I still pay the premium? Will there be any penalty? Will the policy continue or lapse?Will I be able to renew the policy or not? If something happens to me will my nominees get the dues;all this undue pressure just because she missed her premium?

How many of you have faced a similar situation and felt as cornered as Sheetal?

Life Insurance policies are generally long term contracts and face the possibility of missing a premium or two on account of maybe an emergency, a cash crunch or just pure human error. It is important to thus understand what the possible outcomes of this are and how you can overcome them. In fact the consequences of missing paying a premium within the due date generally depends on how much time has lapsed since you missed it. To safe guard the interest of policy holders IRDA has put in place grace period and the terms for the revival or reinstatement of lapsed policies.

Coming back to the example of Sheetal it is evident that she has overshot her premium payment by just a week; a situation that can be easily handled without any major penalties or consequences. Period of Grace or Grace period as it is popularly known can come to her rescue.

What is grace period?

Grace period is the official extra days given by the insurance company to policy holders to pay their premiums after the due date but before the policy lapses without any additional chargeor penalties.Grace period ensures that you retain and enjoy all the policy benefits and helps maintain the continuity of your policyas before. The period of grace differs with your premium paying mode and is usually of 15-30 days. This means that if your premium paying schedule wasannual, semi-annual orquarterly then you get a grace period of 30 days.But if it was monthly then you will get a grace period of only 15 days from the due date; sufficient to put you back on track.

Grace period ensures that you do not lose your risk cover and in case of death (during the grace period) your nominees are entitled to a full claim after deducting the unpaid premium/s.Grace period is thus an efficient way to prevent the insurance company from denying a legitimate claim on mere grounds of missing a due payment.So Sheetal and others like her who have missed their premium payments but are within the grace period need not panic. All they have to do is pay their premium without stress and continue their policy as usual. But in case you are not able to utilize the grace period do realize that your policy will lapse. (Check with your insurer for policy specific details)

So what happens if the policy lapses, you ask? Good question. Lapsed policies don’t give you any benefits and the insurance company can deny paying claims. You will have to revive the policy if you want to continue with the benefits.

Summary:

To summarize we can say that the policy is still in force during the grace period, and if anything happens to the policy holder, the nominee/s would still be eligible for the benefits. Grace period can thus give you that additional time in case you genuinely miss your premium payment date.

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