Working abroad, forgot to pay premium? Find out what to do

What do fast food, e-mail, instant coffee and 20/20 cricket matches have in common? They bear testimony to the fact that time is money. And both are in short supply!

No time to eat, write a letter, brew good coffee, play a game of 50 overs.

Now, what happened when 28-year old marketing manager Prakash Sahni had no time to pay his insurance premium? A missing a premium is not as simple as missing your cup of coffee; a lapsed policy means wasted money and no cover for your family.

Prakash went abroad on a work assignment for five years. He returned to discover that his policy had lapsed and it could not be revived. He lost the Rs 136,000 (Rs 1.36 lakh), which he had already paid up as premium.

Fortunately for Prakash, nothing untoward happened to him during those five years. But if something did, his dependents would not have got a single rupee.

Now, the insurance company gave Prakash adequate opportunities to pay up. All insurance companies offer a grace period of about 30 days after the due date. If you don't pay up within this time frame, your policy will lapse.

If you skip the due date and the grace period, you can still revive your policy. The price you stand to pay: an interest on your premium that can go up to 9 per cent per annum.

This chance of revival can last up to five years with an interest payment, and may even require medical re-examination. If you go abroad, make sure you pay your premium in advance.

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Now, here's what the Life Insurance Corporation India officials told us,"If a policy holder wants to revive a policy after five years, we suggest he take up a new policy, since the fine on premium may be very high by that time."

But even if Prakash's policy lapsed, why did the insurance company retain Rs 1.36 lakh? Simple. His policy had not acquired the 'paid-up value'.

V Ramakrishna, Managing Director, India Insure Risk Management and Insurance Broking Services Pvt Ltd, says, "A policy is surrendered or declared paid-up after paying premium for three consecutive years. If your policy has lapsed due to non-payment of premium and has not acquired paid up value, you don't get any refund."

When your policy acquires the paid-up value, this means that the sum assured is adjusted according to the premiums you have paid.

Now, in a Unit Linked Insurance Plan, part of the premium is paid towards your life cover, and the rest to your fund account as investment.

If you don't pay your premium, the policy will not lapse. But here's the catch: the cost of insurance cover is deducted from your fund account. This means that your fund is used to keep your insurance cover alive.

If the premium amount already paid up by Prakash, had been enough for the five-year period during his absence, his policy would have, perhaps, continued at the cost of his investment. This may sound like a decent contingency plan. But it's not!

Investments are meant to grow and earn returns. By using your investment money to pay off your premiums, you are not allowing your investments to grow. So, at the end of the day, there is no getting around the fact that premiums need to be paid. On time!

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