Insurance policy is a contract between the insurer and policy holder in which the policy holder receives financial protection or reimbursement after a definite time or on death of the policy holder. The insurance company’s obligation to pay out is contingent to the premium paid. This applies to all kinds of insurance policies.  So what happens when you as a policy holder don’t pay the premium? Let’s discuss the repercussions of nonpayment of life insurance premium – 

• Does the policy lapse? – All life insurance plans allow a grace period of 30 days from the premium due date as per the Insurance Regulatory Development Authority of India (IRDAI). Your insurance policy is still in force in those 30 days of grace period, so if anything should happen to you then, your nominee will still be eligible for the benefits. After the grace period, the policy is considered lapsed. It should be noted that the premium paid after the due date attracts a penalty and are much higher. There are many factors which determine the termination of policy and most importantly the type of insurance policy. 
  • Term Insurance – In case of a Term Insurance, if you fail to pay the insurance premium, then the policy is considered lapsed and forfeits the insurance benefits and the premiums paid so far.
  • Unit Linked Insurance Plans (ULIP) – In case of ULIP, if you fail to pay the insurance premium in the first 5 years of the policy or the lock in period, then the policy is considered lapsed and the benefits will be moved to a discontinuance fund and will be paid at the end of the lock in period.
• Can the policy be reinstated? – Failure to pay the life insurance premium does not necessarily mean the end of it. Most of the insurance companies allow revival of the policy within a specified period of time. The process, however, maybe expensive. Penalties, payment of past due premiums and/or a new medical check-up. Below are a few details to keep in mind while you approach for the revival of the policy – 
  • Application of revival – The insurance company will expect you to fill in a revival form much similar to the original application form that you filled at the time of purchasing the policy.
  • Proof of continued insurability – Depending on the insurance company you will need to provide proof of continued insurability. This varies from one company to another and the time from when the policy lapsed.
  • Statement of Health – The insurance company may require you to undergo a medical checkup depending upon the time lapsed of the policy and the fresh details provided by you with the revival form.

According to the law, if the policy was in force for a minimum of 3 years, then the insurance company will allow you to reinstate the policy up to 2 years.

• Buy a new one against reinstating the old one? – Purchasing a new one may turn out to be expensive when compared to reinstating the old one even though you will have to pay, penalties, interest on the late premium, late fee and the missed premium. If you purchase a new policy, that will have a higher premium due to your age and you will lose out on the premium that you paid on your earlier policy.

It is advisable that you pay your life insurance premium on time after choosing the one that is suitable to you and your family. It acts as a financially net to your family in case anything should happen to you.