Life insurance companies provide the insured with a grace period of 30 days, that is, a period of 30 days after the start date of the policy. The insured can pay premium on any day during this grace period. In case the insured dies during the grace period, the insurer is liable to pay the death benefit to the nominee less any amount outstanding including the unpaid premium. This provision helps the insurer to minimize the risk of policy lapse unintentionally.
In case the insured has not paid premiums after the grace period, the policy lapses. However, a lapsed policy can be reinstated within a certain period. The insured has to pay the insurer the accumulated due premium with interest, as well as provide a good health statement. Insurance companies offer many procedures for the insured to revive her/his policy.
In the event the insured dies and the policy lapsed within three years from the date of commencement of the policy, then the insurance company is not liable to settle such claims.
However, some concessions are available and payments of claims are made, that include the following scenarios:
- If the insured had paid premium for at least three years and thereafter if premiums have not been paid, the nominee would receive a proportionate paid up value
- If premium has been paid for a minimum term of two years and if the insured dies during the term of the policy
- Within three months from the date of first unpaid premium, the full sum assured along with bonus is payable less the unpaid due premium and the premium that falls during the policy anniversary
- In between three to six months from fully unpaid premium, only 50 per cent of the basic sum assured is payable
- No bonus is paid and no arrears of premium are received between six months to one year from fully unpaid premium
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