Dear Friends, we know that insurance has become one of the essential needs of people during their trying times. Insurance provides us financial safety against insured perils or risks. The risks may be man made or natural. We are facing today one of the greatest and dangerous pandemic COVID-19. This is man made and emerges from CHINA. This pandemic has derailed economy of all over world and claimed lives of millions of people. In India we are still facing the worse faze of this pandemic. Every day’s thousands of people are dying and lakhs are becoming affected by this COVID-19.
The cost of hospitalisation has increased may folds and this is due to inhuman behaviour of some business men and hospitals. They are amassing crores of rupees by exploiting poor people of this country.
Insurance against these types of risks /perils is only a hope for general public to cope with medical bills and for safety of their beloved.
We know that contract of life insurance is a continuous contract, which goes year to year and on the other hand contract of health/general insurance i.e., insurance against fire, flood, health etc. are yearly contract. These contracts are required to be renewed every year by paying premium of time and before the time allowed by the insurance companies. It important and necessary to pay premium in case of all insurance polices before date appointed for payment to enjoy benefits. An insurance policy may be lapsed for non-payment of premium at time and benefit available will be lapsed.
In case of policies other than life insurance these contracts are contracts for year only, and the insurance automatically comes to an end after the expiry the year, but can be continued for a further period if before expiry of the year the insured expresses his intention to continue it and pays the premium.
DAYS OF GRACE
Generally, all insurance companies allowed some days even after expiry of the stipulated period of insurance, during which assured /insured can pay the premium in order to continue or renew the policy of insurance.
The extra days provided by insurance companies for payment of premium in case of renewal of insurance policies is called “Days of Grace”. As name suggests these days are allowed by insurance companies by way of courtesy, more or less, and they are not bound to extend the time of payment under law, customs or terms of the contract.
Please note that if the continuance of the risk under a policy were conditional on the payment of a premium on the certain specified days in each year or quarter and no provisions were made for the over-due premiums , the policy would immediately lapse if the premium was even one day in arrear and in consequence the assured could be placed in the position of having to apply for a new contract of insurance , which in the case of life he could not obtain the same terms as in the earlier insurance policy, and the insurers if they have accepted the application they have to prepare a new policy and pay stamp duty.
The insurance companies to mitigate above hardship for issuing new insurance policies and for giving comfort to the insured generally allowed payment of premium beyond some days even after stipulated days mentioned in the insurance policy. This period beyond stipulated date in which an assured/insured can pay overdue premium is called “Days of Grace” and it depends upon nature insurance and particular conditions as to renewal inserted in the insurance policy.
1. DAYS OF GRACE IN CASE OF YEALRY INSURANCE CONTRACT;
If contract of insurance is for a year only, the days of grace are meant in order to afford the insured and additional opportunity of renewing the contract and not of continuing it. Now suppose if an insured has not given consent for renewal of contract and loss incurred during period of Grace, then insurance company will not be liable for payment of claim.
1. In contract of insurance where the insurers reserve the opinion to renew the risk, the assured is not covered during days of grace if renewal premium remain unpaid, is that, before it tendered and accepted.
2. If before expiration of the year the company give notice to the insured that unless an increased premium is paid the insurance would not be renewed and the assured refuses to accede to this demand, the company was not held liable for any claim after expiration of period of one year but within days of grace.
3. Simpson Vs. Accidental Death Insurance Co.it was held that in the case of an accident policy which is a contract renewal yearly, the company are not bound to accept the premium tendered during the days of grace, the company have the option to renew or not to renew the contract at its pleasure.
2. DAYS OF GRACE IN CASE OF LIFE INSURANCE CONTRACT; in case of life insurance policies the insurer generally not decline to renew the insurance policy and fundamental nature of the provisions in the contract of insurance for renewal are to be looked into, and it depends very much on the construction of the policies. If risk expires on the day when the premium is due and the days of grace are merely given as an opportunity for renewal. The insurance protection will not be available during the period of grace in this case, the death before payment of premium is not covered.
Since life insurance policy is a continuing risk carrying the insurance beyond the day on which the premium is payable and subject to lapse or forfeiture on that day or within the days of grace, and therefore, death before the payment of premium is covered, because until days have expired there cannot be any forfeiture.
The Rule in Stuart Vs. Freeman in this case plaintiff was the assignee of a policy of insurance on the life of another. The policy was for a year and premium to be paid quarterly, first quarterly payment being made at the date of policy. One of the conditions of the policy was that it should be of no effect if at the time of death of the assured any quarterly premium should be more than 30days in arrears. The assured died during the year after one of the dates fixed for payment of quarterly premium but within the days of grace. In an action to recover the amount it was held that the policy being a year subject to defeasance on ono-payment of quarterly premium no question arose as to revival of the policy but payment during the days of grace was prevented from lapsing the policy and plaintiff was entitled for payment of claim.
Lord Justice Mathew said that “in my opinion the correct view as to the days of grace allowed by the terms of this policy is that if payment is made within the time mentioned in it, it is to be taken to have been made on the day appointed for payment, and is to have the, same effect as if it had been made on that day.”
THERE ARE TWO VIEWS WHILE CONSIDERING DAYS OF GRACE;
1. Where contract of insurance is one of annual risks merely. a contract of fire, burglary, or accidental insurance, the contract automatically comes to an end after expiry of the specified year and both the parties have an option of renewing it or refusing to renew it after a year. The days of grace in such contracts would not afford any relief to the insured if the loss occurs during these days of grace, unless he has expressed his willingness, expressly or tacitly to renew the risk.
2. In case of contract of life assurance, the policy creates a continuing risk, the insurance companies have no option but to continue it on the payment of the premium each year. On the non-payment of the premium the policy merely lapses. If therefore, the death occurs during the days of grace without payment of premium, the money due under the policy become payable.
THE PERIOD OF INSURANCE MAY BE EXTENDED BY THE DAYS OF GRACE; there may be conditions in the policy itself by which the insurers may be liable for any loss happening during the days of grace notwithstanding the non-payment of the premium before loss, as for instance when the original period of insurance is extended by the days of grace. The policy remains in force during the period of days of grace whether renewed or not. There is no question of renewal because the loss if covered in the original policy, which is effective during the days of grace.
It is abundantly clear that if payment of premium due has been made within a grace period of one month, the policy would be treated as valid and the assured would be paid the amount to which he was entitled after deducting the premium amount due at the time of loss under said insurance policy. But it is clear that if premium is not paid before expiry of days of grace, then the policy lapse.
1. such provisions in the insurance policy does not preclude the insurer from giving notice that they would charge an increased rate of premium.
2. if terms of policy require payment should be from the insured, then payment received from his legal representatives does not renew the policy.
PAYMENT BY THE REPRESENTATIVE AFTER DEATH OF ASSURED; where insurance is upon life of the assured and is expressed to be conditional upon the payment of premiums by him, the inference may be that payment after his death by his executors does not satisfy the condition. This would not be so if the risk be construed as a continuing risk subject to forfeiture because insurers are liable until forfeiture and no subsequent tender or payment of premium is necessary, as it would be if it was a question of renewal. The rights of parties become fixed at death and insurers are liable for the insurance money less the premium which has become due.
RELIEF AGAINST FORFEITURE; Forfeiture of a policy results in the insurer not being liable under the policy. The premiums already paid also need not be refunded.
When premiums were not paid, the policy lapsed and the amount already deposited by the insured can be forfeited by the insurance company ad per terms and conditions of insurance policy.
Reserve Bank of India Vs. Peerless General Finance and Investment Co. the apex court held that what is important is that if the policy holder commits default and does not pay any one of the first three premiums, the premiums already paid automatically stands forfeited to the LIC entitling the policy holders to no benefits. The forfeiture clause in practice operates harshly, especially against the poor class, the very class which requires greater security and protection. The court added that it cannot help feeling distressed that despite Articles 38, 39, 41 and 43 of the Constitution, the LIC of India, an instrumentality of the state which has the monopoly of life insurance business has not taken any steps to offer proper security and protection to the needy poor people. The court further observed that if the LIC is really interested in treating the poorer policy holders less harshly and move liberally LIC should revise its terms and conditions in the direction of deleting the forfeiture clause altogether as has been done by the Peerless CO. or to delete if at lease for policies for small amount.
Note: A notice of options available in the event of a policy lapsing is required to be given by the insurer in terms of Section 50 of the Insurance Act, 1938 within three months if they are not already set forth in the insurance policy. Where options have been already incorporated in the policy no notice is required.
The renewal notices of policies contain a condition to enable the assured to renew the policy after due date of payment of premium during further period known as Grace Period. Where premium is not paid within the grace period the policy lapses.
CONCLUSION: Insurance has become necessity of every person. It keeps us indemnified from various types of risks or perils. But it is our duty to pay the insurance premium on time and on the date fixed for payment. There are two insurance contracts available one is on year-to-year basis and other is continuing for more than one year. In case of an insurance contract for year to year the insurance cover is not available if before specified date we are not able to renew or pay renewal premium. The insurance companies generally provide some more days for payment of premium after specified date and if an insured/assured is not paid the premium during that extended premium, then his policy will lapse. The extended period given by insurance companies are called Days of Grace. The insurance cover generally continues during the days of grace and it also depends on the terms and conditions of insurance policy.
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