A good financial portfolio should definitely have the insurance component to ensure financial security for your loved ones.

It is vital to make sure you choose your insurance policy based on your current and projected income or simply put your current and projected ability to pay the insurance premiums, your medical state, your age, future financial plans.

However, your task does not end by just obtaining an insurance policy.

You should ensure you do not forget your premium dues, else a time could come when your dependents might face difficult time financially.

Let us consider what happens in a scenario where a bunch of premium payments have been skipped and how you can avoid it.

Mr Ajay, 32, has been going through an old bunch of documents, and comes across an insurance policy he had taken when he was 28, but had completely forgotten about it.

The first (and only) annual premium paid was `8,000, and he is now feeling bad that the money paid has gone down the drain. Or, has it?

Grace period premium payment

The grace period for paying your insurance premiums is one month. During this period, the policy remains valid.

However, beyond this, the policy lapses, and no claims will be entertained by the insurance company in case of any eventuality.

How to revive an old policy

In Ajay’s case, the policy has ceased to be in force for three years, hence he is not within the grace period.

Yet, Ajay can still revive his policy, since an insurance policy can be revived within five years from the date of the last unpaid premium.

What Ajay needs to do is contact the insurance company, submit a declaration of health from a doctor recognised by the insurance company, and pay the amount of unpaid premiums along with a late payment penalty.

Benefits of reviving an old policy

What benefit would Ajay get out of reviving an old policy?

For one, he would get the benefit of having to pay regular premiums calculated when he was 28 — which would be less than the premium for a similar, new policy taken at the age of 32.

Secondly, he will continue to get all the benefits and guaranteed returns of the policy as was promised to him four years ago.

Last, but not the least, he benefits from tax deduction under Section 80C for the entire payment made towards arrears in premium payment, not counting the penalty. On the other hand, if Ajay decides against reviving the policy, he stands to lose the money that he paid as premium.

If Ajay had paid his premiums for three years before discontinuing the policy.

He would still have received the amount paid as premium along with pro-rata accrued bonuses at the end of the policy term.

Doing it right!

Ajay’s twin, Vijay, is more meticulous. He has a similar policy, issued at the same time as Ajay’s, and his policy is still active.

This, even though he has been out of the country for the last two years. How did he manage that? Well, being meticulous, the first thing Vijay did was set up an ECS facility with his bank in India and every year his premiums get paid directly, without his intervention.

Knowing how careless his brother is about remembering to pay his premiums, he has some advice for Ajay:

* Ajay should update his correspondence address, contact numbers and email address with his insurance company whenever there is a change, so that they can send him reminders about due dates.
* Ajay should also check with his insurance company, if they have an SMS alert facilities — this would ensure that he gets reminders by SMS.
* Like Vijay, Ajay could set up an ECS facility with his bank (as long as he remembers to have the money in his account whenever his premium is due!).

Though we have taken Ajay’s and Vijay’s cases, this scenario is something that may be played out even in your lives.

Look at the options that Ajay has and then you can ensure that your premium payments are never late or skipped!

(Adhil Shetty is the CEO of BankBazaar.com)