Why does an insurance company charge late fee?
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Despite choosing the best possible insurance policies, there are times when people encounter unexpected situations that make them falter on premium payments. This can further lead to a bigger trouble of policy lapse if one fails to pay the premium even within the grace period. However, the insurance companies offer a second chance to revive the policy through a payment of late fees, so that the policyholder doesn’t lose his money.
What is a late payment charge in life insurance?
A late payment charge is the penalty you need to pay to revive life insurance that has lapsed due to non-payment of premiums. The amount of this penalty varies across the insurance companies and is usually a significantly higher amount. Typically, it consists of all the outstanding premiums along with an applicable rate of interest added to the sum. One has to go through this ordeal to get his policy back in force so that he doesn’t lose the money already paid as premiums and the benefits and coverages offered by the policy. However, usually, a life insurance company allows the revival of a lapsed policy within the next five years only.
What happens if you delay paying the life insurance premium?
A life insurance premium payment has to be made on or within the due date, beyond which a grace period of up to a maximum of 30 days is available. If you don’t pay the premium within the grace period, even the policy gets lapsed with all claims turning invalid and all the benefits and coverages terminated. A late fee allows payment of the entire outstanding amount along with a penalty to revive the policy within a stipulated time frame.
How to avoid late fees and other penalties?
There is no other way to avoid late fees and other penalties in life insurance than paying the premiums on time. To do that that you can avail of the following steps:
- To ensure paying premiums on due dates, you can use the auto-debit option. This enables automatic deductions of the premium amounts from your registered bank account as per the premium payment schedule.
- Alternatively, set reminders for the premium due dates which can save you from missing them. Align the premium payment schedule with your online calendar for a smooth experience.
- An annual premium payment schedule can spare you from the fear of forgetting the monthly premium due dates.
- Stay alert for reminders from your insurance company about the approaching due date.
Late payment charges of course are a way to revive your lapsed policy even if you completely falter on your premium payment. However, you need to pay a considerably more price for that as well. So, it’s indeed wiser to pay the premium within the grace period offered by the insurer if you miss the original due date. Why go for a loss when you have a way out, right?
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ARN - ED/08/23/4052
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