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Life insurance premium FAQs

April 15, 2009 10:10 IST

Sameer P was happy that he had finally shrugged off his boredom and managed to buy a term insurance policy for himself. This will help his family get an agreed amount in case of his untimely death. But when his friend Rajesh asked him about the insurance premium he had paid to his insurance company Sameer drew a blank.

He had no clue that the money he paid to service his term insurance was called as 'premium' and he will have to make this payment every year so that his policy does not lapse.

Having realised that his friend hardly knows anything about premiums Rajesh decided to give him a primer on premiums. Here's how Rajesh simplified the matters for Sameer, and the latter, at the end of it, was a much relieved man.

Where should you pay your premium? Is there a way in which your premium can be paid automatically?

You can pay your life insurance premium through any of the following channels:

  • Insurance offices: Main office or branch offices
  • The Internet: Through banks that your insurance company has tie-ups with
  • The bank: You can provide your bank with standing instructions (auto-pay) to debit your account as and when the insurance premium becomes payable, or use phone-banking facilities
  • Authorised service providers such as or

    What if you forget to pay your premium?

    Usually, you would receive a notice from the insurance agent and the insurance company reminding you about your due premium payment. However, if you don't receive the reminder, you cannot hold the insurance company responsible; the loss as well as the responsibility to pay your premium before the due date is yours.

    An insurance company usually provides a 30 days grace period (15 days if the payment mode is monthly) during which the premium has to be paid. However, if the policy lapses due to non-receipt of premium within the first three years, it can be revived within two years from the lapse date. The insurance company charges interest for the deferred payment of the policy and has the right to accept or decline reviving the policy.

    Several schemes exist to revive a policy; for example, in the case of a money-back policy, the survival benefit under the policy (the money receivable from the insurance company at regular intervals) can be used to pay premium plus interest.

    The point is to remember you are taking a chance with your family's future by being negligent. And you and/or your family could pay for the consequences, literally.

    What happens if a policy lapses?

    A life insurance company provides 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 minimise 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
  • 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

    I have not paid premium for a few years. Do I get anything back from the insurance company?

    The insurance company provides a grace period during which you can pay the premium and keep the policy in force. For a regular premium paying policy, premium has to be paid within 30 days of the due date (15 days if the payment mode is monthly).

    If it has been less than three years since you purchased your policy and not paid premium, you may not receive any money back from the insurance company.

    If you have paid premium for more than three consecutive years, then a surrender value could be payable to you. However, this would vary by company and plan type. Typically, the surrender value depends on the:

  • Type of policy
  • Amount of premium
  • Policy term
  • Number of years for which the premium has been paid and
  • Accumulated bonus, if any

    What do you do if you lose/misplace your insurance policy?

    If you think the policy is lost or misplaced, do check again at your residence, office, among your investment papers, and verify with your insurance agent as well. Recollect and confirm if you have pledged it with your insurance company/any other financial institution.

    You need to apply for a duplicate policy from the branch that services you. Upon due diligence, the insurance company will provide you with a duplicate policy after paying the necessary fees and executing an indemnity bond. (In order to facilitate the verification process, you could provide the company with a premium receipt and identification proof).

    In case the policy has been partially destroyed due to natural causes like, fire, flood, etc, the remaining portion may be returned as evidence of loss of policy.

    Will your premium amount increase after you have purchased a policy?

    An insurance policy is a contract or an agreement that you enter into with the insurance company. The premium is a fixed price that you are willing to pay in order to remain insured for the term of the policy. Thus, the insurance company cannot increase the same at a later stage (unless you have defaulted on your premium dues, for a long period).

    Can I obtain a loan on my policy? If so, when can I avail it and what would be the maximum amount I can avail?

    No loan is available on term plans. However, a loan is available in case of most policies with profit/bonus/guaranteed additions. It is also available on unit-linked plans. However, it is always prudent to verify such details in the brochures and the plan.

    A loan may be available within one to three years of the commencement of the policy, depending on the plan and the insurance company.

    The loan amount depends on the type of policy, the premium amount, the term of the policy and the number of years the premium has been paid.

    Approximately 75 per cent to 90 per cent of the surrender value of the policy is available as a loan, at the prevailing rate of interest. The sum can be repaid in part or in full at any time during the term of the policy. If the loan is not repaid, it will be deducted from the proceeds of policy.