Avoiding Term Insurance Lapses: Tips To Keep Your Coverage Intact

Investing in a term insurance policy is a wise decision to secure your family’s financial future in the event of unexpected tragedies like the loss of a breadwinner. What is a term plan? It is the purest form of life coverage where the insurance company pays a fixed sum assured to your nominee in case of your untimely death within the policy period.

Not only do you get abundant peace of mind, knowing that your family can cope and meet future costs in your absence, but you also get term insurance tax benefits, including deductions up to Rs. 1.5 lakh under Section 80C on premiums. Sounds like a win-win? There’s more! Any life insurance payout arising from a death claim is tax-exempted in the hands of a nominee under Section 10 (10D).

However, failing to pay your premiums can lead to the policy lapsing, which would undo all the good that it was meant to do. This means that all benefits associated with the policy come to a halt, and it is either terminated or enters a paid-up status. In other words, while life misrepresentation in insurance may not provide security for your loved ones, it is important to keep up with premiums to ensure that the policy remains in force. Here’s a little guide to what goes wrong and how to keep your policy running without hassle.

What Is A Policy Lapse, And What Does It Entail?

A policy lapse means any scenario where the term insurance plan loses its validity. If it becomes invalid, then the policyholder will no longer be covered, and no claims can be legally made against the same. The most significant cause behind a policy lapse is the inability or failure of the policyholder to pay premiums in time. However, the insurance company does allow a specific grace period of around 30 days from the last date of paying the premium.

You can make your payments within this period to continue the policy with all its benefits intact. However, missing the payment in the grace period leads to a policy lapse. Here are some tips to help you avoid these situations throughout the policy period.

Avoiding Policy Lapses- What You Should Do

Here are a few tips that you should keep in mind with regard to bypassing policy lapses and enjoying continued life coverage throughout the pre-fixed duration.

• Pay Your Premiums On Time- You should always endeavor to make the premium payment before the last date. Do not keep waiting till the last date to make the payment. Even if you miss the payment for any reason, ensure that it is promptly done within the grace period. You can schedule notifications and reminders to help you stay on track with your payments. You can also allocate a separate amount for premium payments at the beginning of the policy.
• Plan Your Finances Thoroughly- Although term insurance plans usually offer sizeable coverage at a relatively lower premium, you should still budget for the same before going ahead with your purchase. In an ideal scenario, you should always have at least a few months’ premium payments in your account. Use a term plan calculator to estimate the amount payable for a certain coverage amount and factor it into your monthly expenses. You should avoid going for expensive policies that are well beyond your budget. Always take your current liabilities and financial condition into account prior to deploying investments in any policy.
• Automatic Payments Are A Good Option- If you can maintain a minimum account balance each month, it is a good idea to opt for automatic deductions of your premiums. This will keep you from missing out on the payments at any time. You can set an auto-debit mechanism for the premium payment well before the last date.

These are some tips that will help you avoid missing out on premium payments and eventual policy lapses. Even if the policy lapses despite your best intentions, you can quickly restore the same after 2-5 years. This is possible through paying the entire premium due along with submitting a declaration regarding the stability of your profession and health. You may have to pay the penalty for missing out on premiums in order to revive the policy. Do this as swiftly as possible and consult your insurer regarding the process.

As they say, a step in time saves nine. Follow this motto from the outset when you plan to purchase term insurance. Budget for the premium payments and make sure that you always have surplus funds in your account. Set an auto-debit mechanism, and you will never have to worry about failing premium payments again. Avoid going for unnecessarily high coverage that you cannot afford in your monthly budget. At the same time, it is also important to mention that you should try to go for the highest possible coverage in order to account for future inflation and to cover liabilities, future goals of the family, and other expenses.