Understanding the Grace Period in Term Plans
No matter what stage of life we are at, our families mean everything to us. We work hard and put in all of our efforts to ensure that their dreams and hopes are fulfilled. However, it is equally important to plan for their financial security for a time when we may not be around to help them.
One of the best ways to protect your family financially is through a term insurance plan. The family term insurance plan provides a higher life insurance lump sum amount when compared to most other insurance plans available in the market. While the traditional term plans do not offer any assured returns, individuals looking for the returns can get the term plan with maturity benefits. You must research thoroughly and buy online life insurance as it will help you make an informed decision.
In a term plan, the policyholder will have to pay a premium amount to the life insurance company for the plan’s tenure. Making premium payments on time will ensure that the policy will stay in effect.
However, a policyholder may not always be in a position where they can continue making the payments on time. A delay in making the premium payment can be caused by many issues. But a failure to make the premium payment on time can lead to a policy lapse. Considering these situations, insurance companies offer policyholders some extra time known as a grace period.
What is the Grace Period?
The grace period refers to a certain number of days, after the policy expiry date, given by an insurance company to a policyholder to pay their life insurance renewal premium. The grace period will vary on the basis of the premium amount payment method.
There are 2 types of premium paying methods for life insurance policies:
- Single premium:
In this method, the policyholder makes a single lump-sum payment for the policy.
- Annual payments:
The annual payment can be divided into half-yearly, quarterly, or monthly instalments per the insurer’s conditions.
If a policyholder makes annual payments, the maximum grace period provided to them for the renewal of their plan is 30 days. If the policyholder makes monthly payments, they are eligible for a grace period of 15 days.
What Happens if the Grace Period for the Term Insurance Plan is Over?
If you fail to renew your term life insurance plan during the grace period, your policy will lapse, and your loved ones would lose their financial protection. This could be a serious problem if, in an unfortunate scenario, you are also unable to provide for them. If a term insurance plan lapses, it will be a big loss for the policyholder as they won’t benefit from the premium payments they made towards the plan.
If the policyholder passes away in the grace period, their beneficiaries are eligible to get the death benefit after the unpaid premium amount gets deducted from the plan. By following your insurance provider’s guidelines, you can make sure your term life insurance does not lapse.
Should you Revive a Lapsed Plan or Buy a New Plan?
Most insurers offer their customers the option to revive their term plan. The terms and conditions will vary as per the guidelines set by the insurer. If you opt for reviving the plan, you may also have to undergo a medical test. You may have a timeframe of 2 years to revive the term plan, but you may have to pay some extra funds as revival fees, interest charges, medical test costs and penalty.
It would help if you compared the costs of taking both the decisions. However, if you choose to buy a new term plan online, then it might be a costlier affair. When you bought the original policy, you were younger and thus had lower premiums. If you buy a policy at a later date, the premiums will be higher. Thus, you can choose to make the one-time payment of the various penalties and enjoy the lower coverage of your older policy. But, if you are okay with paying a higher premium and want to avoid the hassles of reviving an older policy, you can choose to buy a new term insurance plan.
Policyholders must make their premium payments on time as it will hold the policy in effect. However, if a policyholder cannot make the premium payment on time, they will be provided with a grace period as a benefit to make the premium payment on time. But they must make the payment during the grace period to keep the policy from a lapse.