What will happen in case the renewal premium has not been paid even after the grace period in insurance?

iStock 1 min read . 12 May 2022Abhishek Bondia

Insurance companies provide a grace period of up to 30 days from the policy renewal date to pay the outstanding premium

Listen to this article

Your browser doesn’t support HTML5 audio

I bought a 10-year traditional insurance policy in 2015. I paid the premium for the first five years but was not able to pay for the last two years. Can I start paying the premium now? Has the policy lapsed? What happens if I don’t pay premiums on time in the future?

—Name withheld on request

Insurance companies provide a grace period of up to 30 days from the policy renewal date to pay the outstanding premium. Beyond this, if the premium is unpaid, the policy is considered to have lapsed.

However, lapsed policies can be revived. A policy can be revived by paying the past premiums, and additional charges as levied by the insurer.

Often, insurers come up with special schemes or campaigns to revive lapsed policies. In such schemes, they would typically waive any penalties or additional charges.

If you do not want to pay premiums in the future, you can also surrender the policy. By now, your policy would have acquired a surrender value.

I am 35 years old and have recently bought a term insurance policy. I read an article recently that said banks can lay claim to your assets if there are unpaid loans—be it car, home, or personal loans—despite the term insurance. I would like to know if there is any way to ensure that banks cannot claim any amount received by my nominee in the event of my untimely death?

—Name withheld on request

Banks or lenders can be made a beneficiary of a term plan, only if you assign the life insurance plan to them. The process of transferring your rights to another person or entity is termed an “assignment".

The assignment is common for large loan amounts, where you, as a policyholder, assign your life insurance policy to the bank(s). However, in the absence of an assignment, the bank can claim its right on the proceeds only through the courts by attaching your estate to recover the loan.

As for a married woman, the amount can be secured from financial creditors by buying the policy under the Married Women Protection Act. Proceeds arising from such policies would then belong solely to the wife.

Abhishek Bondia is principal officer and managing director, SecureNow.in.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.

The answer depends on whether you are receiving advanced premium tax credits. For people receiving advanced premium tax credits, if a payment due date is missed, insurers must provide a 90-day grace period during which consumers can bring their premium payments up to date and avoid having their coverage terminated. However, the grace period only applies if an individual has paid at least one month’s premium.

If, by the end of the 90-day grace period, the amount owed for all outstanding premium payments is not paid in full, the insurer can terminate coverage.

In addition, during the first 30 days of the grace period, the insurer must continue to pay claims. However, after the first 30 days of the grace period, the insurer can hold off paying any health care claims for care received during the grace period, which means the enrollee may be responsible to cover any health care services they receive during the second and third months if they fail to catch up on the amounts they owe before the end of the grace period. Insurers are supposed to inform health care providers when someone’s claims are being held. This could mean that providers will not provide care until the premiums are paid up so that they know they will be paid. People not receiving advanced premium tax credits are expected to get a much shorter grace period; currently, the general practice is 31 days but it may vary in each state.

Whether or not you are receiving premium tax credits, if you have coverage terminated for non-payment, this could affect your ability to buy coverage from that health insurer in the future. Insurers are allowed to require people who owe back-due premiums from the past 12 months to repay the premium debt before they will renew or sell you new coverage for the year.

States can prohibit or limit this practice by insurers. Contact the Marketplace and your state insurance regulator for more information.

An insurance grace period is a defined amount of time after the premium is due in which a policyholder can make a premium payment without coverage lapsing. The insurance grace period can vary depending on the insurer and policy type.

Depending on the insurance policy, the grace period can be as little as 24 hours or as long as 30 days. The amount of time granted in an insurance grace period is indicated in the insurance policy contract. Paying after the due date may attract a financial penalty from the insurance company.

Insurance grace periods protect policyholders from immediately losing coverage in case they are late with a premium payment. Regulations covering insurance grace periods, including how long they must last across policy types, are managed by states.

Some states may allow insurers to drop policyholders immediately, without advanced notice if premiums are not paid on time.

Insurance companies want the insurance grace period to be as short as possible in order to prevent a situation in which they haven't received a premium payment but still have to cover damages. As long as the insurance grace period is in effect, the insurer will be responsible for paying providers for any services they render to the policyholder.

If an insurance policy is canceled due to non-payment, there are no loopholes to force a canceled policy to payout and you'll likely have to go through the entire application process again.

Insurance grace periods are intended to shelter policyholders from losing all coverage if they are late with a payment.
Many financial institutions offer grace periods on their loan products, from student loans to credit cards.
Insurance grace periods are usually not lengthy affairs, as insurance companies don't want to risk having to pay out for damages without having received payment.
After an insurance grace period, a policy may be canceled due to non-payment, which will be detrimental to the policyholder.

If you choose to reinstate coverage, insurers usually need to make sure there were no losses in the interim by inspecting the property. The insurer may also require a larger down payment on the premium or require that it be paid in full. A non-payment history can complicate shopping for new insurance. Insurance applications often ask if you've ever had a policy canceled, and if you answer yes, you'll be probably be flagged as a high-risk customer and be subject to higher premiums.

Consider a homeowner that has a flood insurance policy on their home in a flood-prone area. The policy premium due date is set to April 1, and the homeowner must pay the premium in order to have coverage for an additional year. The homeowner writes a check on March 28 but forgets to put it in the mail, only realizing the mistake on April 3. On April 4, a flood causes significant damage to the basement.

If the policy did not have an insurance grace period, the insurer would consider the coverage lapsed on April 2 and not cover any of the flood damage. If the policy does have a grace period that extended to April 3, the policy would cover the flood damage.