Term Insurance 270 views June 3, 2021

What Happens If You Stop Paying for Term Insurance?

If you stop paying your term insurance premium, your policy will lapse. However, if you pay within a grace period of 30 days, you can prevent your policy from getting lapsed. Every life insurance company has a different grace period, so check your policy document carefully to find the same. However, if you fail to pay the premium during the allotted grace period, you will face some consequences. Read this page further to know the same.

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What are the Consequences if You Stop Paying Term Insurance Premium?

There will be no legal actions against you if you stop paying the premium for your term insurance. Either your policy will lapse or turn into a paid-up policy. If you stop paying the premium after three years of spotless payment record, your term insurance plan will attain the paid-up status. Consequently, the sum assured will reduce and which will be called paid-up sum assured. The life cover under term insurance will be equal to the paid-up sum assured.

Paid-up Sum Assured = Sum Assured X (Total number of paid premiums/Total number of payable premiums)

Suppose you have a term insurance plan with a sum assured of INR 10 Lakh with a policy term of 20 years and a premium of INR 30,000 p.a. And if you stop paying premiums after 8 years, the paid-up value will be equal to INR 4,00,000. The calculation is shown below –

Paid-up Sum Assured = 10,00,000 x 8/20

Do You Get Term Insurance Coverage During the Grace Period?

Even if you stop paying the premium for your term insurance, you’ll still get coverage during the grace period. So, in case an insured person dies during the grace period, his/her nominees will receive the term insurance plan benefits.

Can You Reinstate Term Insurance if the Policy Lapses?

Yes, many life insurance companies provide options for reviving the lapsed policy within a specific time limit. To reinstate term insurance, you need to submit proof of continued insurability. The insurer will charge penalty interest on the due premium and revive your policy. Revival fee on term insurance will range from 1-3% above RBI Bank rate, depending upon the date of revival.

Note: Life insurance companies may ask you to undergo a medical examination if required.

New Term Insurance vs Reinstated Term Insurance

In case your term insurance plan lapses due to non-payment of the premium, you have two ways – either you can reinstate the old term insurance plan or buy a new term insurance plan.

Suppose you have a term insurance plan with a premium of INR 8,000 and now you have stopped paying the premium due to financial problems. If you revive the policy, the insurer will charge a penalty for the due premiums and renewal fee. However, if you buy a new policy, you don’t have to pay any penalty or renewal charges.

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