What is Term Insurance Grace Period?

Many people who hold a term life insurance policy find it challenging to renew their policy on or before the expiry date. To help the policyholders retain their policy benefits and avoid paying any penalty for late renewal, the insurance companies provide a grace period.In the purview of the demonetisation in 2016, many people faced a sudden cash crunch. To mitigate the situation, the IRDA (Insurance Regulatory and Development Authority of India) provided an additional grace period of 30 days for paying the term life insurance premium and renewing the policy.Similarly, in April 2020, in the wake of the COVID-19 pandemic and the subsequent lockdown measures, which led to a slowdown of the business and loss of income, IRDA provided an additional grace period.

In simple words, a grace period is the additional number of days allowed by the insurance company to pay the life insurance premium and renew the policy. The grace period differs based on the premium method you choose.In India, most insurance companies allow two ways of premium payment. One, Single-Premium,in this you make a one-time premium payment in a lump sum at the time of buying the policy. Two, Regular Premium where you can pay the premium monthly, quarterly, bi-yearly, or annually as per your convenience.The following table will help you get a clear idea about the term insurance grace period as per the premium payment frequency you choose.

If for any reason, you fail to pay the premium and renew your term life insurance within the grace period, the insurance company will cancel your policy. This means that you and your family will be left with no financial protection. A lapsed policy is a significant loss for you as you lose the premium you have paid earlier and lose the insurance protection.However, in the event of your unfortunate demise while you are in between the grace period, your family is eligible to receive the death benefit as per the policy's terms and conditions. But, remember, when paying the death benefit, the insurance company will deduct the unpaid premium.

Almost all the insurance companies in India allow the policyholders to revive their lapsed policy within two years after the term insurance grace period is over. But, the condition of revival may vary from insurer to insurer. You must also pay additional money as interest charges, penalty, revival fees, etc., to revive the policy. Some insurers may also require you to undergo a medical test, and you must bear the charges out of your pocket.So, if you are unsure whether to revive the old policy or invest ina new one, it is advisable to compare the costs and decide accordingly.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.