As an adult, it’s natural to have a never-ending to-do list filled with bills that need to be paid and deadlines that need to be met. In such a case, it’s understandable that you may miss out on certain important dates, such as paying your insurance premium. It might also be possible that you may be low on cash at the time that your premium payment is due. Hence, to provide a buffer, insurance companies offer a grace period.
What is an insurance grace period?
In simple words, the grace period is an extension of the premium payment deadline. An insurance grace period is an extra time given to the policyholder to make the payment towards the insurance cover to avoid a lapse in the coverage. The term insurance grace period depends on the type of insurance policy and the insurance provider.
However, generally, the term insurance grace period varies from as low as 24 hours to 30 days. The term plan agreement states the grace period allowed as per the policy subscribed by you and it’s important to make a note of it.
How does the term plan grace period work?
Reasons for seeking a grace period can differ from one person to another – you might need the cash for unanticipated expenses, you may have not received your salary timely, or the payment date may have simply skipped your mind. The reasons may differ but the solution to extending your payment cycle is simple – grace period.
The insurance company also typically sends a reminder to the policyholder alerting them of the missed payment and the extended date by which they need to make the payment to avoid the policy from terminating. All insurance companies provide their policyholders with a grace period or an extension timeline if they are unable to pay their dues timely. For instance, during the pandemic, say your neighbor lost their job and forgot to pay their life insurance policy premium. Keeping the 15-day grace period of their term policy in mind, your neighbor made use of the extra days to arrange for the funds and avoided losing their insurance coverage or being penalized due to this delay.
Features of term insurance grace period
Depending on the premium payment option
The grace period, as the name suggests, is an extension timeline whereby the policyholder is not penalized for paying a premium later than the due date. This extension period varies with the premium payment option you choose – monthly, quarterly, semi-annually, or annually. For instance, the grace period for the annual premium payment option may be longer than that for the monthly payment option.
Claims are eligible during the grace period
The term plan meaning is to offer death benefit coverage to support your family in case you’re no longer around. This purpose of the term plan continues to stay in place even during the grace period. Since the grace period is an extension to your regular premium payment date, you can make a claim during the grace period like you would normally. As per the documentation and norms, if the death occurs before the grace period ends, then claims made are eligible. But if the claim is made post the grace period and the premium has not been paid by then, the claim will be rejected.
The death benefit may have a deduction
In case the policyholder passes away during the grace period and a claim is made, while the claim will be eligible, there will be a deduction. The pending premium amount will be deducted from the death benefit before the payout is made to the nominees.
High costs for renewing a lapsed policy
While you can buy a new term plan in case your old one lapses, it may cost you more if there’s a significant age difference between when you bought your first policy and now. This is because the insurer will now calculate the risk depending on your current age and that may lead to higher premiums.
Key takeaways
The grace period gives you the opportunity to make good on your premium payments in case you were unable to meet them. Since the consequence of not meeting your premium payments is severe – lapse of your insurance policy – the grace period acts as a shield. As the grace period differs depending on the insurance provider, type of term plan, and premium payment method, it is essential that you are aware of it at the time of buying the policy.
