What is insurance grace period?
Table of Contents
Insurance is still the most popular choice when it comes to securing the future of the family, building a savings corpus to fund life goals or seeking market returns to grow your investment. But while purchasing the best-fit policy is crucial, the most important task afterwards is to pay your premiums on time to make the most of your investment. However, even if you miss your due date, there’s scope to avoid policy lapse and keep the policy benefits intact. This is in the form of a grace period, which typically means an additional time period beyond the due date, offered by the insurance company to pay your premium and keep the policy running.
How does the insurance grace period work?
There can be situations where you unintentionally miss out on premium due dates owing to an unexpected financial crunch. Here the grace period provided by the insurance company acts as a shield and protects the policyholder from a policy lapse or loss of insurance coverage. Paying the premium within the grace period keeps the policy in its original mode of operations and the policy benefits and coverage intact.
What happens after the grace period is over?
Once the grace period is over and the premium is still due, the policy lapses. The insurer cancels the policy, thereby terminating all the coverage and benefits of the plan. Particularly in the case of life insurance, a policy lapse means losing all the money paid as premiums till that point and getting no desired financial security for the family in the event of the unforeseen.
Why is it important to pay your premiums on time?
Paying the premiums on time helps you to reap the maximum benefits from your policy. For life insurance, it ensures that your family will receive a lump sum death benefit if you die an untimely death or additional financial support if you suffer an accidental disability, or get diagnosed with a critical or terminal disease. Timely payment of health insurance premiums on the other hand keeps you safe from medical hazards and expensive treatments.
What happens if I don’t pay premiums on time?
Not paying premiums on time can cost you heavily. Here’s a glance at it.
- Failing to pay premiums on the due date or within the grace period can lead to invalid claims on your policy. This can be a major loss in case of a death claim.
- Critical illness riders1 in your health or term insurance come with a waiting period before you can get the coverage. Not paying premiums within the grace period cancels the rider1 and one has to go through the waiting period again.
- Coverage for pre-existing diseases (if any) can be terminated if you falter on your premium payment. To renew the same, you might need to serve the stipulated waiting period all over again.
- Not paying the premium even in the grace period makes you lose the No Claim Bonus (NCB) of your health or vehicle insurance.
- Renewal of a lapsed policy is more expensive as it includes penalty charges and no claim bonus amounts.
- Some general insurance policies offer to switch your insurance company and port to a new one. This facility is lost upon non-payment of premiums.
How long does a grace period typically last?
The length of the grace period depends on the insurer and can vary over a wide range of 24 hours to 30 days, based on the terms and conditions specified by the policy. In most cases, a monthly premium schedule offers a grace period of 15 days while an annual premium payment structure comes with a 30 days option.
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ARN - ED/08/23/3796
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