Effectivity Date Of An Insurance Policy Contract
When dealing with an insurance company, there arises a situation wherein you argue as to the effectivity of your insurance policy with regards to your last premium payment. Since various insurance companies follow a different set of rules when it comes to premium payment, the policyholder is often confused about the exact effective date of the policy contract.
There are several factors that affect the effectivity of an insurance policy. The first is the effective date that was mutually agreed upon. This date is binding to both parties even if the premium payment was done on a different date. The second is a method called backdating wherein the date is set at a previous date other than the time when the contract was signed. This is permissible only if done within limits of the law which usually tolerates backdating to just six months.
Another factor is the date where the actual payment of the initial premium was made, based on the insurance quotes given. Under this arrangement, premium payment and policy delivery are prerequisites for an insurance coverage to take effect. Another factor used in determining the policy effectivity date is the delivery date of the policy. Herein arises the problem of the next premium due date. Since there is a time frame involved between the signing of the contract to its actual delivery, a policyholder is often confused as to what date to follow when paying his next premium dues. The majority rule for this situation favors the date stipulated in the policy. But a minority of courts decides on the date that the insurance coverage began.
There arises a situation where in a client with a lapsed policy due to none payment of premiums wishes to reactivate his insurance coverage. An insurance policy is usually not in effect if the grace period for paying a premium due is exceeded. This means that if anything happens to a policyholder while the policy is considered lapsed, his beneficiaries will not get anything. This is different from the suicide clause wherein no benefits are given if the insured commits suicide within two years from the effectivity of a contract, except the total amount of premium paid.
To reactivate a lapsed insurance policy, the insured has to pay all the premiums that were unpaid during the period that the policy was lapsed. This is done in one payment and the total amount is usually too big for the average policyholder. An insurance company offers a solution that is called re-dating. Here, the effectivity of the policy begins anew from the date the insured makes his renewed payment. This has the advantage of not paying the unpaid premium dues. The disadvantage is the loss of all the previous payments that were made prior to the lapsation of the insurance policy. However if the previous payments were too small to warrant paying the lapsed premiums, it is better to redate the policy. But if the total payments before the policy lapsed are too large, then it is more advantageous to pay the unpaid dues to avoid its loss.
Know what your policy covers, but also know what it costs right now, and in the future! Surprises are NOT an option in insurance!
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