The grace period that the government has given to policyholders comes with a twist. The government and insurance regulator had extended the premium payment period for insurance policies four times ever since the outbreak of the coronavirus in India. All policies whose premium fell due after March 25, 2020 could have been paid before May 31, 2020, the Insurance Regulatory and Development Authority of India had instructed.
In India, insurance is a contract that kicks in only when you pay the premium.
So, if you haven’t paid your premium even during the grace period, the insurer needn’t pay your claim. This grace period is the time given after the policy expiry date, within which you can still pay the premium and avoid a policy lapse.
While many needed the additional premium payment window due to a lack of funds, a few others thought of it as an opportunity to get a cover extension period and make good use of the money in the interim. Sidestepping insurance payments for the interest this money earns in the bank account or other such reason, comes with repercussions.
“At present, only the duration of the grace period has been increased. The admissibility of claims will be as per the guidelines and terms and conditions. The coverage is offered for the period, for which premium is received,” says Abhijit Chatterjee, Executive Vice President (Claims), IFFCO Tokio General Insurance.
Payment on humane grounds
However, insurers are taking a compassionate approach during this unprecedented period. “Our priority has been to settle the claims as quickly as possible. In the prevailing circumstances, a humane approach is the need of the hour and we will be deciding on the admissibility of claims on a case-to-case basis in line with IRDAI guidelines,” he adds.
Typically, if your policy premium was due on April 30, 2020, you could have paid the policy premium until May 15, 2020 without suffering a policy break. However, if you got hospitalised on May 7, 2020 and registered a claim for the same, then, technically, the insurer can reject it for lack of premium payment as per the terms and conditions of the policy.
Insurance industry insiders say that due to the ongoing COVID-19 crisis, some insurance companies have been taking a softer approach and honouring claims even if policyholders did not pay the premiums and have taken refuge under the grace period.
What if you miss the grace period also and make a claim? In this case, you need to renew your policy first and then make a claim. Sanjay Datta, chief–underwriting and claims at ICICI Lombard, says “That’s because your policy is said to be been expired. The continuity benefits will not be paid.”
So, if your premium was due on April 30, then IRDAI granted you a window to pay the premium till May 31, 2020. If you still hadn’t paid the premium and want to register a claim on June 7, 2020, then the insurer will definitely reject the claim as you have a break in policy.
Recovering premium from final claims
Some insurers are taking the step of recovering the premium from the claim amount payable. “If the claim has been registered for reimbursement, then the due premium amount is being deducted upfront from the claim amount and the balance is paid to the policyholder. We are unable to do this for cashless claims. So, if one skips the payment during the 15-day grace period or has pending premium instalments then it would be difficult to honour the claims,” said an insurance company spokesperson on the condition of anonymity.
The recovery of premium is being done even in cases where premiums are payable in instalments. “This is the first year when insurers are allowing premium payment in instalments. So, if there is a claim and a policyholder has been paying premiums in monthly instalments, then the insurance company is deducting the balance premium for the year from the claim amount,” says Naval Goel, CEO and founder of PolicyX.com.
Other benefits continue
So, then what is the use of a grace period if the claims aren’t entertained? Well, there are many other benefits that an insurance policy offers and they stay intact. As Chatterjee explains, “The continuity benefits such as no-claim bonus and waiting period for pre-existing diseases do not change if the policy gets renewed during the grace period. The coverage also remains the same as per policy conditions even with delayed payment of renewal premium within the grace period.”
The best option is to pay the premium as soon as it is due, so all your benefits stay and your waiting period doesn’t get extended.