What Happens When a Term Insurance Premium Is Not Paid?

 

Most people purchase term plans to safeguard their family’s financial future. Term policies offer life cover for a specific time. If anything happens to the policyholder during the policy term, their nominee receives the sum assured payout. Term plans do not offer any maturity or investment benefits. Since they’re pure insurance policies, they are quite affordable. Most people opt for term plans instead of other life insurance products for this reason.

What Is Term Insurance Premium?

Since term policies are insurance products, policyholders need to pay a premium at regular intervals to keep their policy active. So, your term plan premium is the amount you pay at regular intervals to keep your policy going. As the policyholder, you can choose how often you want to pay your premium. Some people make payments monthly, quarterly, every six months or once a year.

What Happens If I Miss a Term Plan Premium Payment?

Once you purchase a term plan, you should pay your premiums on time. But, some individuals may opt to stop paying mid-way through the policy term. If this happens, the insurer will not take any legal action against you. So, your term insurance premium payment is not like a mandatory credit card payment or bank loan EMI. If you miss a payment, your policy ends.

If you missed paying the term plan premium by accident, do not worry. Every term plan comes with something known as a grace period. This is a period of time during which you can make your premium payment even after the due date. Let’s say you pay annual premiums for your term plan. Every year, your premium is due on 1st August and your term plan has a grace period of 30 days. If you do not pay the term insurance premium before 1st August, you have until 30th August to pay. If you make the payment within the grace period, your policy will continue as normal.

Things to Keep in Mind While Buying Term Insurance

Before you purchase your term plan, there are a few things you need to consider:

• The Cover Amount

Understanding how much cover you need is the most crucial step. Your decision will depend on your age, current finances, lifestyle and future financial responsibilities. Younger individuals can opt for higher sum assured amounts without worrying about high term insurance premiums. Ideally, you should pick a sum assured amount at least 20 times your current income if you’re between 25 and 35. If you’re between 36 and 45, you can opt for a sum assured amount that is just 15 times your annual salary. If you’re above the age of 46, you can pick a sum assured amount that is 10 times your annual income. Remember to consider the rate of inflation and other financial liabilities like loan payments as well.

• The Policy Term

Your age should determine the policy term. When you’re younger, you can opt for a longer term. The idea is that the term plan should provide you with life cover at least until you decide to retire. So, individuals in their 20s should pick plans that offer a term of 40 or more years. Conversely, an individual in their 50s can opt for a policy term of just 10 or 15 years.

• Pick Your Payout

Term plans now allow policyholders to pick how they would like their nominee to receive the payout. Most insurers will make a single lump-sum payout. But, if your family has long-term financial liabilities, you can opt for your nominee to receive the payout in monthly or annual instalments.

• Find the Ideal Insurer

Picking the ideal insurance provider for your needs can seem daunting. But, there are some vital factors you need to check. Firstly, make sure the insurance provider offers the kind of coverage and payout option you’re looking for. If you’re looking for particular riders, ensure the insurance provider offers what you need. Next, check the insurance provider’s claim settlement ratio. The figure lets you know how likely your nominee is to receive the payout after raising a valid claim. Finally, look at the insurance provider’s market reputation. Check the number of valid customer complaints and their grievance ratio. Once you’re happy, you can go ahead and pay your term plan premium.

When it comes to paying your term insurance premium, it’s always a good idea to make your payments before the due date. In case you forget, you can make the payment within the grace period to keep your policy active. If you can, set up an auto-debit with your bank account to ensure you never miss a term plan premium payment.

Related Articles

• What Does Grace Period Mean in Term Insurance?
• What Will Happen When a Term Life Insurance Policy Matures?
• What Happens If You Outlive Your Term Life Insurance Policy?
• Should I Surrender My Term Policy?

ARN - ED/10/23/5711