If you have insurance, then you know how important it is to pay your premiums. One of the reasons you get life insurance is to free yourself from worries, but failing to pay your premium can be the source of it.
Life may throw some unexpected jolts that cause you to miss a payment, such as the unprecedented global pandemic that put many people's lives on a tailspin. Those who are greatly affected by such circumstances could have had trouble paying their insurance premium.
But what really happens when you miss your insurance premiums? Many factors are involved, and we will talk all about it below, along with a few tips to ensure you won't miss another payment again.
What Happens If I Fail to Pay My Insurance Premium?
There are four standard payment schedules for insurance premiums: monthly, quarterly, semi-quarterly, and annual. Whether it's VUL insurance or health insurance, there will be consequences for missing this schedule. Here's what's bound to happen when you miss paying your insurance premium.
● The insurance company will give a grace period.
When you miss your premium, you don't instantaneously lose your insurance coverage. There's a grace period of usually one month (depending on your policy and insurance provider) that allows you to pull your account back to good standing without any additional charges to renew the policy.
● Loss of insurance coverage.
Once the grace period is over, and you still haven't paid the premium, that's when the policy will lapse, and you lose your insurance coverage for the term insurance. If you have a permanent insurance policy, there are a variety of options, the policy account value may be applied to the premium, cash out the policy, reduce the death benefit (no cash saving), convert the permanent policy to a term policy for a while, or let it lapse. If the policy lapses, you can reinstate it and pay back the premiums plus interest.
Different treatments depend on your type of insurance.
o Those with cash values (VULs or insurance with investment)
In case the policyholder forgets to pay their premium on the due date, their plan will not lapse immediately. Instead, the system will deduct the premium amount from the investment fund value sans late fees or penalty charges.
o Those without cash values (life or health insurance only)
If you fail to pay your premiums within the grace period, you will lose your insurance coverage. But there is hope: your policy can be revived. Most insurance providers allow reinstatement within two years of the lapse. You're required to compensate for the unpaid premiums, cover the penalty fees, and go through a medical exam to prove you're in good health.
How to Avoid Missed Insurance Premium Payments
1. Pay annually, if possible
As you now know, missing one payment and failing to pay within the grace period could cost your term policy. To avoid missing payments altogether, opt to pay annually. That's just one payment to remember per year, so the chances of you forgetting your due date are reduced significantly. Plus, you get to prioritize your financial obligations over unnecessary expenses.
2. Always set reminders for payment dates
Whatever payment plan you choose, make sure to set reminders for the due dates. You can make a reminder on your phone calendar, jot it down on your planner, or write a note and stick it on your fridge to ensure you don't miss the deadline. It's better to set multiple reminders to keep it on top of your mind than none at all.
3. Make premiums auto-debitable to your account, if possible
If your bank account allows, automate the payment by setting up an electronic fund transfer. Some insurance providers allow automatic payment options, so see if it's something you can set up to help prevent you from missing insurance payments.
4. Create a separate account for premium savings accounts
If you use several savings accounts for your different savings goals, why not set up one for your insurance premiums? Creating a separate account dedicated to your premiums allows you to keep your finances organized and your premiums on your radar.
Preserve Your Peace of Mind
Whether you have a term or permanent insurance policy, this is one of the things that lets you and your family sleep peacefully at night. Having a cushion to rely on in case anything unforeseen happens to you is well worth preserving. Keep this in mind whenever you budget your finances or when it's time to pay bills.
You may review your policy document or ask your insurance provider about the grace period and other related concerns about missed payments. It's essential to familiarize yourself with the consequences and options if you fail to cover your premium. Of course, you must do everything you can to avoid going down that road.
Are you shopping for an insurance policy? BPI-Philam makes it easy, fast, and convenient to get insured amid the pandemic. Feel free to schedule a virtual appointment with our Bancassurance Sales Executives to learn more!