As per 64 VB provision in the Insurance act 1938 the premium which is also the consideration of the contract needs to be mandatorily paid in full before any coverage starts under the policy. Now if your insurer is taking your insurance premium in instalments or EMI, which is true nowadays for many insurance products like health, life and others, he is also complying with the above provision of insurance act and covering you for that much risk and period only for which you have paid premium in advance.
It is always the best practise to pay your insurance cheques on time and keep the policy in force till the maturity or a claim is triggered to enjoy the full benefits under the policy. In case you have opted for the EMI payment through ECS which is deducted every month from your account it is essential to check the account for sufficient balance before the premium deduction every month for smooth operation of your policy. Although it is good to maintain a separate tracker of all premium payment due dates, at times it may happen that you miss the premium payment date or do not have sufficient funds just before policy renewal so that ECS can be cleared from account for premium payment. In this article we are going to discuss a few points which one should keep in mind regarding bounce of insurance premium.
Notification: Insurer will notify you for sure if your premium cheque is bounced, this has been made a rule by the authorities and quite helpful to remind in case one has just forgot to pay the premium on time. Any such notice received from insurer should be acted upon quickly and premium due paid in full to receive the continued benefits under the policy.
Grace Period: The insurer will try to send you a renewal premium notice by post or email on your registered communication address but they are not obliged to do so. In case you forget to pay the renewal cheque or unable to manage funds on the renewal date there is generally a grace period provided after expiry of the policy in which you can make the payment to the insurer for continued coverage. IRDAI has provided a uniform grace period of 30 days for annual, half yearly and yearly policies and a 15 days grace period of monthly policies. This grace period will be mentioned in the policy document and the policyholder should abide by the same.
Lapsation of policy: Once a premium is not paid for the policy within the grace period the policy will lapse. Once it gets lapsed no benefit under the policy will be paid. However, under some insurance products like life insurance there may a provision of revival of lapsed policies and for this the policyholder should approach the customer service team of the insurer as soon as possible.
Surrender Value: This is a life insurance concept and general insurance products do not have the same. If you are unable to pay the premium under the life policy and want to exit you will get a surrender value acquired. This surrender value will be surely mentioned in your policy document. But surrendering a policy midway before maturity is not absolutely a great choice as the benefits are much reduced that what is entitled on maturity. Once you decide to quit the policy and take the surrender value it is to be noted that any benefit under the policy will not be paid further as the policy itself will cease to exist.
No claim bonus becomes void: In motor insurance once the insurance policy lapses on account of not paying the premium even in the grace period the no claim bonus accumulated under the policy will become zero. The same may be true for your health insurance policy as well. Thus, on failing to renew the policy on time with an accumulated NCB the policyholder will bear the cost next time he applies for an insurance. Also not renewing the motor policy on time will lead to mandatory pre inspection next time you approach any insurer for taking the motor insurance.
If there is a moratorium: In the recent wake of the nation-wide lockdown imposed due to the coronavirus pandemic the regulator has notified an extended grace period for some insurance policies whose renewal was due on march and April. In case of natural disasters or alike incidents of national importance where it is felt by the authority and there is a moratorium granted for premium payments, policyholders if facing a cash crush during the same period can use the moratorium period and pay the premium as notified and need not to worry about the bounce.
There are a numerous court and consumer cases filed in the same context but it is seen that the courts are also taking the same stance and taking the non payment of premium after the grace period as a fault on the part policyholder and if the notice for cheque bounce and non deduction of the ECS from the account is provided by the insurer, any claims are not ordered by the court to be paid except in case of motor third party liability cases where courts have been seen to order the payment of claim even if the premium is due on the part of policyholder.