What happens if you stop paying term life insurance premiums

Life Insurance can be defined as an agreement between an insurance provider and the policyholder in which the insurance provider pays benefits after a stipulated period of time or upon the demise of the policyholder. These benefits are given in lieu of a premium amount that the policyholder pays for a pre-decided period. This means that as a policyholder, you're required know what is your annual premium and pay them on time to receive your insurance policy's benefits.

Table of Contents Show

Does Your Policy Lapse if You're Unable to Pay the Premiums?
Can a Lapsed Policy be Reinstated?
Should You be Purchasing a New Life Insurance Policy if the Old One is not Restored?
Disclaimer:
When does your Life Insurance Policy Lapse?
Can I Reinstate the Life Insurance Policy?
What should I do when I can’t Pay my Life Insurance Premium?
Buy a new policy or Reinstate the previous one?
Do I get money back if I cancel my term life insurance?
What happens if you stop paying term life?
Can I cancel a term life insurance policy?

A very natural question that comes to mind is, what happens if you stop paying life insurance premiums? Does your policy lapse? Can you then restore this lapsed policy? If not, should you purchase a new policy? Let's take a look at the answers to these questions and understand what is insurance premium and why it must be paid on time.

Does Your Policy Lapse if You're Unable to Pay the Premiums?

All insurance plans provide a grace period, usually of 30 days, for paying the premium after due date. The IRDAI stipulates this, and your insurance policy will not lapse if you pay your life insurance premium within this grace period. Therefore, you must know what is your insurance premium due date and make sure the payment is made within 30 days from this date.

Your policy is completely valid during this grace period. This means that if something were to happen to you during this time, your family would still be entitled to all the policy benefits. However, it's important to note that every insurer has its guiding principle. Hence you must check what is the insurance premium grace period offered on your policy along with other related regulations.

The concept of lapse also depends on the nature of the policy. In the case of term insurance, your policy would lapse if you're unable to pay your premium even after the grace period, thereby forfeiting the premium amount paid till now, along with all the other benefits. On the other hand, in ULIPs, if you don't pay the premiums in the first five years, the policy is considered lapsed. After that, all the benefits move to the discontinuance fund, which you can access only after the completion of the lock-in period.

Can a Lapsed Policy be Reinstated?

Sometimes we know what the insurance premium due date is but aren't able to make the payments on time due to some unavoidable circumstances. This causes our policy to lapse. But, if this has happened to you, you need not fret too much about it. There's a provision to reinstate or restore your policy within a stipulated timeframe. This process of reinstatement will be different for different policyholders and would largely depend on the nature of your policy.

Should You be Purchasing a New Life Insurance Policy if the Old One is not Restored?

In most cases, reinstating a lapsed policy will be better than purchasing a new one. This is primarily because the premium costs increase with age, making it even harder for you to continue paying the premium.

So, now you know what is an insurance premium and what happens if you stop paying whole life insurance premiums. While it's possible to reinstate the policy, it's best to avoid such circumstances by knowing what is your insurance premium due date and making the necessary payments on time. You must remember that the payments that you're making towards a life insurance policy will help protect your family from adverse situations in your absence.

Disclaimer:

*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.
Make responsible financial decisions. Consult with your financial advisor before making any decisions on insurance purchase.

Your insurer is responsible to pay you as per your insurance policy but only until when you have paid your insurance premiums. If you stop paying premium for your insurance policy, the insurance company’s obligation to pay you at the time of your needs will end along with it.

First of all, let’s understand what life insurance is. Basically, life insurance is a contract between you and your insurance company claiming that the insurance company will pay a lump sum to your beneficiary upon the unfortunate incident of your death. So, life insurance ensures that your loved ones and family will not suffer financially after you pass away. This clearly indicates that when you stop paying your life insurance premiums, you put your family at risk.

When does your Life Insurance Policy Lapse?

When you buy any type of insurance policy, you have to pay the premium amount till the term of the insurance ends. In return, the insurance companies provide you with the coverage for the losses as per the terms and conditions of the insurance policy. So, when you stop paying insurance premiums or when you are unable to, your insurance policy can get terminated.

Now, this also depends on the type of insurance, the insurance company, as well as the terms and conditions of the policy. For a term life insurance policy, when you are unable to pay before the due date, your insurance policy will lapse. This will result in forfeit of all the insurance benefits as well as the sum that you have paid till now, which will eventually be moved to a discontinuance fund and can only be paid to you after the lock-in period.

As per the guidelines of the IRDAI (Insurance Regulatory and Development Authority of India), the insurance companies are legally liable to offer a grace period, typically up to 30 days. In the grace period, your insurance policy is in force and the beneficiary can claim the insurance sum in the event of your death during the grace period.

Can I Reinstate the Life Insurance Policy?

You wouldn’t be wrong if you think that you can reinstate your life insurance policy after it is terminated in an event where you were unable to pay your insurance premiums on time. However, this may depend from one insurance company to another and also on the terms and conditions of the policy. While most of the companies understand that their users might not be able to pay the premiums alway, they still allow them to reinstate their insurance policy after the termination.

You will have to bear the penalties, renewal fees, late fees, etc. depending on how late you are reinstating your insurance policy. The insurance companies may also ask you to go under medical examination as well as to submit proof of continued insurability.

What should I do when I can’t Pay my Life Insurance Premium?

Here are a few things you can try to do if you find yourself in a situation where you will not be able to pay your insurance premiums and continue the insurance policy.

Try to cash out the policy

Check with your insurance company and the terms and conditions of your insurance policy whether or not you can cash out the premiums that you have paid till now. In this case, your insurance company will no longer provide you with the life insurance benefits and you may also have to pay some tax depending upon the amount that you cash out.

Non-forfeiture Options

Some insurance companies offer what is called a ‘reduced paid-up’ option to the ones who are unable to continue their insurance policy. Here, you can stop paying the premiums without having your policy terminated but your benefits will be reduced depending upon the premiums you have paid till that time.

Reinstate the policy

In case you didn’t opt for the two options mentioned above, your policy will be terminated after the grace period. However, insurance companies allow their users to reinstate their policy but with some late fees, renewal fees or penalties.

Read More: Check Insurance Premium Amount Online Instantly

Buy a new policy or Reinstate the previous one?

If you are worried about the late fees, renewal fees or the penalties that will come with reinstating the terminated life insurance policy and think that buying a new insurance policy could be a better idea, here are a few things you should consider.

If you buy a new policy, then you will lose all the premiums you paid for the previous policy
Premium amount increases with the increase in the age of insurance holders. This implies that the premium that you will have to pay for a new insurance policy can be higher than that of your previous policy; which, in the long run, can make it much more expensive than just reinstating the previous policy

So as a general rule, it is better to reinstate the previous policy as compared to buying a new policy. However, you should compare both and think thoroughly before you finally decide on whether you want to buy a new life insurance policy or just go with reinstating the older one.

Conclusion

An insurance company is responsible to pay for the losses of the insurance holder as per the insurance policy. However, when the insurance holder fails to pay their insurance premiums on due time and then in the grace period, their insurance policy will terminate. Now, they can reinstate the insurance policy but can come with late fees, renewal fees, penalties, etc. or they can buy a new insurance policy.

FAQs

What happens when I fail to pay my life insurance premiums on time?

Generally, you will be provided a grace period which is typically up to 30 days after your due date. If you fail to pay your premium in the grace period as well, then your insurance policy will get terminated.

What happens to the amount I have paid till now after the policy is terminated?

This completely depends on the terms and conditions of your life insurance policy. Generally, the amount is moved to a discontinuance fund and can only be paid back to you after the lock-in period.

Can I reinstate my insurance policy after it gets terminated?

Yes, you can reinstate your insurance policy after it gets terminated. However, the time period by when you can reinstate your insurance policy depends on your insurance company. It can be between 2 years to 5 years depending upon the insurance company.

Mrinal is a 25-year-old digital marketer who is working with Paytm since early 2019. He is skilled at Search Engine Optimisation, a bit of Social Media Optimisation and Social Media Marketing. He has been managing the CMS of Paytm since 2019, strategizes content and writes as well. In his spare time, he likes to read, write, travel and make music.

Do I get money back if I cancel my term life insurance?

In most cases, if you cancel a term life insurance policy, your coverage ends and you don't get any benefit or premiums back. You might get a partial refund on premiums if you've already paid for future months of coverage in advance.

What happens if you stop paying term life?

If you cash out the policy, the insurance company will disburse the cash savings to you. Use the funds how you see fit, but be mindful that you'll no longer have life insurance coverage. You could also be responsible for paying income taxes if the amount you receive is more than what you paid in premiums.

Can I cancel a term life insurance policy?

Can you cancel term life insurance? Canceling your term policy couldn't be easier: just stop paying your premium and write a letter or call your insurer to let them know you are canceling the policy. Check the website of your insurer, too — there may be a form there you can fill out to terminate your policy.

stop paying term life insurance premiums