Why You Shouldn’t Stop Paying Your Life Insurance Premium?

As long as you have paid your insurance premiums, your insurer is obligated to make payments to you in accordance with your insurance policy. Your insurance company’s commitment to pay you when you need it will terminate if you stop paying the premium for your coverage.

Let’s start by defining what life insurance is. In essence, life insurance is an agreement between you and your insurance provider that states, in the tragic event of your passing, the insurance provider will pay your beneficiary a lump sum. Therefore, life insurance ensures that your family and loved ones won’t suffer financially after your passing. This demonstrates unequivocally that failing to pay your life insurance premiums puts your family in danger.

When does your life insurance policy lapse?

You must pay the life insurance premium amount for the duration of the insurance policy’s term when you purchase any form of the insurance policy. In exchange, the insurance providers offer you coverage for losses in accordance with the terms and circumstances of the insurance policy. Therefore, your insurance coverage may be cancelled if you cease paying payments or become unable to do so.

If you are unable to make a payment by the due date for a term life insurance policy, your insurance coverage will expire. All insurance benefits and the money you have already paid will be forfeited as a result, and the money will finally be transferred to a discontinuance fund and paid to you only after the lock-in term.

Insurance providers are required by law to provide a grace period, often lasting up to 30 days, in accordance with the regulations of the IRDAI (Insurance Regulatory and Development Authority of India). Your insurance policy is still in effect throughout the grace period, and the beneficiary can still make a claim for the insurance payout if you pass away during that time. Visit the official website of IRDAI for further details.

Is the life insurance policy reinstateable?

You wouldn’t be mistaken if you believed that if you were unable to pay your insurance premiums on time, your life insurance policy might be reinstated after it had been cancelled. However, this could vary depending on the insurance company and the policy’s terms and conditions.

Depending on how late you are reinstating your insurance coverage, you may be subject to fines, renewal costs, late fees, etc. You can use a life insurance calculator to help you work out approximate costs. The insurance providers can also need you to undergo a medical exam and provide documentation of your continuous insurability.

When I am unable to pay my life insurance premium, what should I do?

If you find yourself in a scenario where you won’t be able to pay your insurance premiums and maintain the insurance policy, there are a few things you can try to do.

  • Try and cash out the policy

To find out if you can cash out the premiums you have already paid, check with your insurance provider and the terms and conditions of your insurance policy. In this scenario, your insurance provider will no longer pay you the benefits from your life insurance and depending on how much you cash out, you might also be required to pay taxes.

  • Non-forfeiture options

Some insurance providers give those who are unable to renew their insurance a choice known as “reduced paid-up.” In this case, you can stop making life insurance premium payments without having your policy terminated, but the benefits you receive will be reduced based on the amount of premiums you have already paid.

  • Reinstate the policy

If you chose neither of the aforementioned two options, your policy will expire after the grace period. Although there may be late fees, renewal fees, or other penalties, insurance companies do allow their customers to reinstate their policies.

Should I get a new policy or reinstate my old one?

Here are a few factors you should take into account if you are unsure whether purchasing a new insurance policy would be a better option because you are concerned about the late fees, renewal costs, or penalties associated with reinstating the cancelled life insurance policy.

  • You will forfeit all of the premiums you paid for the prior insurance if you purchase a new one.
  • This suggests that the price you will have to pay for a new insurance policy may be more than that of your current policy, which could ultimately result in a significantly larger cost than simply restarting your current coverage. You can always utilise a life insurance calculator to gain more insight into the appropriate level of coverage for your needs and those of your family

Therefore, in general, it is preferable to reinstate the prior coverage rather than purchase a new policy. Before deciding whether to purchase a new life insurance policy or reinstate the older one, you should carefully weigh both options and compare them.

Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.

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