One of the major reasons for poor adoption of term insurance is the apprehension that the policy will lapse in case one is unable to pay the premium on time. To address this fear, life insurance companies are now offering premium holiday rider and premium delay rider.
The premium holiday rider can be selected at the time of purchasing the term plan by paying an additional premium. In case the policyholder is unable to pay the premium in any year, the rider gets activated and the policy does not lapse.
The policyholder can resume paying the premium the following year, along with the premium for the missed year, without incurring any additional fees or penalties. One can select this feature in the policy for up to three years. The premium holiday rider raises the premium cost by around 5%.
Safety net
This feature acts as a safety net in the year the policyholder is unable to pay the premium. “It provides a financial cushion, letting you manage short-term financial challenges without sacrificing your insurance coverage,” says Rhishabh Garg, head, Term Insurance, Policybazaar.com.
The rider can be beneficial during periods of financial difficulty, such as job loss or unexpected expenses. “By offering a premium holiday, insurers can retain customers who may otherwise allow their policies to lapse due to temporary financial constraints. This helps maintain the customer base and prevents policy lapses,” says Sharad Bajaj, chief operating officer, InsuranceDekho.
Premium delay rider
This rider provides flexibility in payment schedules allowing policyholders to delay their premium payments without penalties. It can be crucial for those who have irregular income or temporary cash flow issues. In case of a financial emergency, a premium delay rider can offer the necessary leeway to manage finances without the immediate pressure of premium payments.
For policyholders who do not want to pay an additional premium for the rider, there is a built-in premium delay plan. If a policyholder misses a premium payment, the policy remains active. He can pay the skipped premium along with the next year’s premium, ensuring continuous coverage without any additional costs. This feature makes it easier and more affordable to maintain a policy.
Policyholders can delay their premium payments for a short period, usually a few months, without incurring late fees or risking policy lapse. The delayed premiums are typically added to future payments or deducted from the policy’s cash value, if applicable.
Cost of the riders
The cost of adding a premium holiday rider or a premium delay rider to a life insurance policy varies based on factors such as the policyholder’s age, health, the base policy’s sum assured, and the insurance company’s terms.
Rakesh Goyal, director Probusinsurance.com, says generally these riders add a small percentage to the overall premium. “Expect an additional cost of 2-5% of the base premium. However, the exact cost should be discussed with the insurance provider for accurate pricing.”
Adding riders such as premium holiday and premium delay riders to a life insurance policy provides valuable financial flexibility and security, often at a relatively low additional cost. “While the exact costs can vary, policyholders should expect to pay a modest percentage of their annual premium for these benefits,” says Bajaj.
