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Late Payment Charge for a LIC Premium

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Life Insurance Corporation of India (LIC) is one of the country's most trusted life insurance companies, serving millions of policyholders. With an LIC plan, you can easily get financial security for your family. 

With that said, as a policyholder, it's crucial for you to remain vigilant about your premium payment deadlines to continue enjoying uninterrupted coverage. Unfortunately, life can be unpredictable, and there might be instances when one fails to pay their premium on time. In such scenarios, LIC imposes a late payment charge.

This article will cover all the information regarding late payment charges on LIC premiums, the consequences, and more.

What are Late Payment Charges?

Late payment charges are essentially penalties imposed by insurance providers on policyholders for not paying their premiums within the stipulated grace period. The main objective is to encourage timely payments and maintain the financial integrity of the policy.

Grace Period in LIC Premium

LIC offers a grace period for premium payment depending on the premium payment frequency -

  • Monthly Mode: A grace period of 15 days is provided.
  • Quarterly, Half-yearly, and Yearly Mode: A grace period of 30 days is offered.

During the grace period, the policy remains active without any interruption in the coverage. However, if the premium remains unpaid after this period, the late payment charges come into play.

Calculation of Late Payment Charge

LIC calculates late payment charges as a percentage of the premium amount, which might vary based on the policy's terms and conditions. Generally, the late payment fee is a nominal percentage of the due premium amount, and it can increase the longer the delay.

For instance, if the monthly premium is ₹1,000 and the late payment charge is 2%, the policyholder would owe an additional ₹20 as a penalty for the delay.

Interest Rates to LIC Premium Payments

A detailed breakdown of the interest rates applicable to late LIC premium payments can be found in the following table:

Months (Delayed) Late Payment Fee for INR 1 per Premium
  6 % 7.5% 9.5%
Month 1 0.005 0.00625 0.00792
Month 2 0.001 0.0125 0.01583
Month 3 0.015 0.01875 0.02375
Month 4 0.02 0.025 0.03167
Month 5  0.025 0.03125 0.03958
Month 6 0.03 0.0375 0.0475

Note: LIC considers the following while charging interest - 

  • 1 month = Up to 45 days
  • 2 months and beyond = From 45 to 75 days

Implications of Non-Payment of LIC Premiums

Beyond the late payment charge -

  • Lapse of Policy: If the premium is not paid even after the grace period and beyond a certain extended period, the policy might lapse. In this case, the life cover would cease.
  • Revival of Policy: A lapsed policy can be revived within a specific timeframe, usually 2 years. However, this might require the policyholder to pay the outstanding premiums and late payment charges, and possibly undergo a medical examination.

Revival Options for LIC Policy

For policyholders who have unfortunately let their LIC policy lapse due to non-payment of premiums, it’s worth remembering that all is not lost! Keeping the best interests of its policyholders in mind, LIC offers several options to revive a lapsed policy. 

Let’s take a closer look at the options -

  • Ordinary Revival: This is the most common method for reviving a lapsed policy. The policyholder here is required to pay all the overdue premiums along with the accrued interest or late payment fees. A health declaration or medical examination may be required, depending on the duration of the lapse and the policy's terms.
  • Special Revival: If settling all outstanding premiums at once poses a challenge, this option might be apt. Under this approach, the policy's start date is adjusted to ensure it remains active just before the due date. Similar documentation, like medical certificates or other necessary forms that are part of the standard revival process, will be required. However, to benefit from this option:
    • The revival should be initiated within 3 years after the policy lapses.
    • The policy should not possess any surrender value.
    • This method can only be chosen once during the policy's term.
  • Instalment-based Revival: For those who cannot manage to pay all the backlogged premiums in a single payment and if the Adjusted Commencement Revival isn't feasible, this method can come to the rescue. Based on this scheme, immediate payment is required on the day of revival:
    • For the monthly mode, premiums for 6 months have to be settled.
    • For the quarterly mode, payments for two quarters are due.
    • In the half-yearly mode, a single half-yearly premium is needed. The outstanding revival amount can then be paid in instalments over the subsequent two years, alongside the regular premium.
  • Revival through Loan: If your LIC policy holds a surrender value by the time you wish to revive it, you can opt to re-activate the policy by taking a loan against its value. The loan amount is determined based on the premiums paid up to the revival date. If the revival demands additional funds, you'll need to cover that. Conversely, if there's a surplus, it will be refunded to you.
  • Using Survival Benefits for Revival: If a survival benefit, which is due in a money-back policy, becomes available, it can be leveraged to reinstate the policy provided the revival date is after the survival benefit's due date. 

If the survival benefit doesn't cover the entire revival cost, the deficit must be paid by you. On the other hand, if there's an overage, the extra amount is returned to you.

How to Avoid Late Payment Charges?

Here’s how you can avoid late payment charges with respect to your LIC policy -

  • Automate Payments: Consider automating your premium payments through Electronic Clearing Services (ECS) or standing instructions with your bank.
  • Stay Updated: Keep track of payment due dates on your calendar or set reminders.
  • Early Payment: Try to pay your premiums well before the due date to eliminate any chances of inadvertent delays.

To Conclude

While LIC provides a grace period considering the uncertainties of life, it's in the best interest of policyholders to ensure timely premium payments. Not only does it save one from late payment charges but also ensures continued protection for the insured and their loved ones. 

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