Providing financial protection to your family from the uncertainties of life is always the utmost priority for everyone. Life risks can happen anytime and cannot be predicted under any circumstances. The best way to provide this protection is by purchasing a life insurance policy. The policy is designed to safeguard your family’s financial interests in your absence.
When you purchase a policy, you are required to pay premium towards it. However, there are time when many people are not able to pay the premium. In such situations, the insurer provides a grace period. What is this grace period in life insurance? How does it help you as a policyholder? Read more to find out.
What is life insurance?
It is a type of policy that provides financial protection to the family of the policyholder from different life risks. The policy signifies an agreement between the insured and the insurer, wherein the insurer will pay an amount to the family of the insured. This amount is known as the death benefit, which the beneficiaries receive if the policyholder passes away during the term of the policy. There are different types of life insurance policies that you can look at before you select one for yourself.
What is a grace period?
Consider an example. Rajesh purchased a policy with a term of 15 years. He was able to pay the premium for his policy for up to 5 years. However, due to some financial problems he was not able to pay for his policy. His insurer, noticing the absence of premium payment sends him a notice about the initiation of a grace period. He has 30 days of grace period before the insurer starts charging him penalties for the delay. Rajesh somehow manages to pay the premium during the grace period, thus not losing the benefits of the policy.
As you can see in this example, a grace period is basically a window provided by the insurer to the policyholder during which the insured can pay the premium without attracting any penalties or losing the benefits of the policy. The grace period varies from insurer to insurer.
Facts about the grace period
Listed below are facts about grace period that you should be aware of:
- If you file a claim following the demise of the policyholder after the grace period is over, the insurer might reject the claim if the premium has not been paid during the grace period.
- Even though the grace period varies from insurer to insurer, the number of days offered for repayment is often kept short by all insurers. This could be either 15 days or 30 days.
- If the premium is not paid during the grace period, all the benefits of the policy including those given with the add-ons become nullified as the policy tends to lapse after the end of the grace period.
- If you pay your premium during the grace period, there will not be any kind of interest levied on the payment and only the original amount has to be paid.
- If the family of the policyholder files a claim during the grace period, they are entitled to death benefits. However, the insurer will deduct the amount of unpaid premium from the death benefit amount before disbursing it to the beneficiaries.
- Even if you are not able to immediately pay during the grace period, the insurance cover continues during that period.
Why should you avoid dealing with the grace period?
Even though there may be many reasons as to why you cannot pay the premium on time, it is better to avoid the grace period altogether. Not only does it impact the benefits that you enjoy from the policy, but it could also lead to your policy getting lapsed. Insurers provide a revival period as well if the premium is not paid for a long time. However, failure to pay the premium during this period will not only get your policy terminated, but it could also cause you a loss in terms of the money already paid.
If you want to continue enjoying the benefits of your policy, keep paying the premiums on time. You can use the life insurance calculator to get an idea about how much premium you should pay based on your requirement before you purchase a policy.