In the wake of the recent cash crunch as a result of demonetisation of Rs500 and Rs1,000 notes, the Insurance Regulatory and Development Authority of India (Irdai) has extended the grace period for paying the renewal premium of life insurance policies by 30 days .
“We are in receipt of a representation from the Life Insurance Council to extend the grace period by an additional 30 days for all the policies… After examining the representation and keeping in view the inconvenience to policyholders…the authority has allowed the extension of grace period by an additional 30 days for all the policies issued by life insurers, the premiums of which fell or falls due on or after 8th November, 2016 till 31st December, 2016,"said the notification.
This is a special, one-time provision from the regulator.
Mint Money explains the rules relating to the grace period, which is given for the payment of premiums for life insurance policies, and what this extension means.
What is grace period?
Life insurance products are long-term contracts. There are two ways of paying the premium for your life insurance policy: upfront payment (by buying a single-premium policy) or annual payment (by buying a regular premium policy). Since these policies are long-term in nature, you typically buy a regular premium policy, which can also come in a limited payment variant.
Under the limited payment version, you don’t pay the premiums through the entire course of the policy term. Instead, you pay premiums only for a certain number of years in the policy term.
Now, in the case of a regular premium policy, other than annual payment of premiums, the insurers may also allow you shorter instalments of monthly, quarterly or even half-yearly payments.
For annual premium payments, you need to pay the premium on the renewal date—which is exactly 1 year after the previous premium was due. But in order to make it easier for you to pay, the insurers allow you a grace period of 30 days to pay the renewal premium. However, if you had chosen to pay the premiums every month, then the grace period for you would be 15 days. For unit-linked insurance plans (Ulips) in the first 5 years, or during the lock-in period, this grace period extends to 75 days—after which the money moves to a discontinued fund, where it is kept till it is paid to you after the lock-in period is over.
An insurance cover remains valid during the grace period. But if you don’t pay up within the grace period, the policy lapses. If the lapsed policy had acquired a surrender value, the policy would get converted into a paid-up policy with reduced insurance benefits. Typically, you have 2 years to revive such a policy.
Irdai has further extended this grace period by 30 days for policies with renewal premium dates between 8 November and 31 December. So, in addition to the grace period that the policy already offers, you will get an additional period of 30 days: a total of 60 days. While you can use this period to pay your premium, you can also use the other banking facilities to pay your premiums on time.