Please note: the information contained in this legal update is correct as of the original date of publication Show
The forced closure of many businesses as a result of the Coronavirus pandemic has had a huge impact on the nation’s Gross Domestic Product (GDP). Recent reports from the Office for National Statistics state that the economy was 25% smaller in April than it was in February this year1. In a situation where cash flow has all but dried up, many financial obligations continue. If difficult decisions are being taken regarding the allocation of funds, some businesses may be looking for “quick wins” and deciding not to pay insurance premiums. However, where the premium is unpaid will the insured still have cover? Having not performed its part of the bargain – are insurers obliged to provide an indemnity? The position is not necessarily as straight forward as one may think. The starting pointAs is usually the case, the starting point is to consider the wording of the insurance contract. In most cases, payment of the insurance premium is not a requirement for the creation of a binding insurance contract. Payment of the premium may be a condition precedent, with payment usually being made on inception of the risk.2 However, unless the policy unequivocally states that time for payment of the premium is of the essence, then the default position is that it is not. Such a stipulation will not be implied3; absent an express clause to that affect non-payment will not in itself prevent risk from attaching. We address these two broad categories below:
Payment by instalmentsWhere payment is made by instalments it is a matter of construction whether the policy is single period or a series of separate contracts, a new one being formed on the payment of each instalment. The distinction is potentially as fine as the policy wording referring to ‘the premium’ as opposed to ‘the premiums’.6 Ordinarily payment by installments is no more than the insurer providing credit and the policy period will remain as one. Remedies and concluding remarksWhere the date for payment is of the essence (either as a matter of construction or as a result of notice being served), the insurer may:
Given the unprecedented times affecting many businesses, it may be necessary to depend on insurers adopting a reasonable approach to such matters. Indeed, one of the measures mooted by the Financial Conduct Authority is the idea of deferred payments to help insureds suffering from financial difficulties during the coronavirus pandemic.7 Indeed, where insurers have the right to offset claims against unpaid premiums, the more palatable and regulator friendly approach would be to allow the insured a period of time to pay the premium. However, in cases where no claims arise, insured’s might be happy to waive the insurance it hasn’t needed to call upon but in those cases insurers could lose out on millions in premiums. C-authored by Jude Cummings and Alex Lucas. 1Office for National Statistics, ‘GDP monthly estimate, UK: April 2020’ (ONS, 12 June 2020) accessed 18 June 2020. The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it. What is the effect of non payment of premium on the policy?If the premium due is still not paid the insurer may reduce the insurance amount to the value of the redemption payment, provided that the instalments have been paid for at least two years. Failing this, the insurer may terminate the contract.
What does the grace period allow a life insurance policy owner to do?Most policies have a 31-day grace period after your premium's due date. You can make a late payment without being charged interest and still be covered. If you die during the grace period, your beneficiary gets the death benefit minus the past due premium.
How long is the grace in group policies?A short period — usually 90 days — after your monthly health insurance payment is due. If you haven't made your payment, you may do so during the grace period and avoid losing your health coverage.
How long is the grace period for an individual life insurance policy quizlet?Typically, a life insurance policy's grace period extends for either 30 or 31 days after the date in which the premium is normally due.
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