Most people will agree that buying term insurance is of high importance in the security of any family. But a lot of people forget to renew their term plan timely which cause the insurance plan to lapse. Let’s figure out why the renewal of a term insurance policy is important and what we can do to make sure premiums are paid on time.
Term insurance is a form of a life insurance policy. It gives the insured’s family financial cover in the case of untimely passing of the insured, during the period of insurance. This cover is very important for a family’s financial safety.
For instance, if a person has a home loan of Rs.15 lakh and a term plan of Rs.25 lakh, even if the person, unfortunately, passes away, the family will get the insurance amount and can repay the debt as well.
Why is it important to renew term insurance?
- It stops the protection for your family – Non-renewal of a term insurance policy will result in the policy’s lapse and a lapsed policy is the same as having no policy. This could put your family’s financial safety in jeopardy.
- It could result in reduced plan benefits – Once your policy has lapsed, you will lose all benefits including the riders you have added. You are also not eligible for a refund of the money you have paid for the insurance. If you are to buy a new plan after the old plan lapsed, you will have to add riders from the beginning and availably and prices of these riders could vary as well.
- Higher premiums – As you age, your term insurance premiums will also go up.
For instance, according to an online term plan calculator,
For a 25-year-old, coverage of Rs. 1 crore for 10 years will cost them at least Rs. 450 per month.
But at the same time, the same plan will cost a 55-year-old at least Rs.2886 per month.
So, when you drop a policy before maturity, it gets lapsed, and the new policy could cost you much higher.
- You will have to retake medical test and KYC – When your policy gets lapsed, you might need to take a medical test and the KYC process again to renew it or buy a new plan. This is not just a waste of time, variations in your medical test will make term insurance premium higher as well.
- You will not get tax benefits – You could claim tax benefits for the premiums you have paid. But if your plan gets dropped, you can’t claim tax benefits.
- There will be a waiting period – Term insurance policies clubbed with riders like critical illness riders will have waiting periods of three months or more. Once your insurance policy has lapsed, you will have to go through the waiting period once again.
How to make sure your term insurance is paid on time?
- Setting up auto debit options- This will automatically debit your payment amount from your bank account or credit card. All major insurance providers have this option.
- Keeping your details up to date – Making sure your details, including your communication address, email address, and phone number, are up to date with your insurance provider can make sure you don’t miss any payment reminders
- Making sure you can afford your premiums – Choose a plan that is affordable for you so that you are not short in cash when you have to pay. You can use a term insurance plan calculator to figure out the math.
- Making sure you don’t miss any communication from the insurer – Communication emails from insurers can carry very critical information like a payment reminder or a policy change. Make sure you read them all.
If you have a term insurance, double-check on the payment date, and make sure you pay on time. If your plan has unfortunately lapsed, make sure you buy a plan as soon as you can and do follow the above pointers to make sure you don’t miss a payment again.