Deferment Period in Life Insurance

People often get confused with the term ‘Deferment Period in Insurance’ as the meaning is not clear by the name. But, this term is important to understand as it holds the utmost importance for policyholders as well as insurance companies. Let’s know the meaning of the Deferment Period in Insurance and its importance in the insurance sector.

What is the Deferment Period in Insurance?

Deferment Period = Postponed Income Period

The deferment period in life insurance is a gap period or waiting period between the last date of premium payment and the actual benefits being received. This period is valid for some life insurance policies such as savings plans, retirement plans, child plans, ULIP plans, etc. During this period the policyholder has to bear the financial burden of the loss incurred. The deferment period is mentioned in the terms and conditions of the policy. This period may vary from plan to plan and insurer to insurer.

During the deferment period in life insurance, the insurer will not receive any kind of income from their insurance company. This period is essential when you don’t need money now but at a later stage of your life to meet financial obligations. A policyholder can choose the deferment period as per their financial goals at the time of purchasing the policy.

Let’s understand the deferment period in insurance with a simple example.

Mr. Shyam purchased a retirement plan from HDFC Life on March 1, 2024. As per the policy terms Mr. Shyam has to pay an annual premium of Rs 50,000 for 10 years. He will receive the income benefits in annual installments starting from the 15th year. He will pay annual premiums till March 1, 2034. But he will receive income starting from March 1, 2039. The gap period of 5 years between March 1, 2034, and March 1, 2039 is referred to as the deferment period.

Why is the deferment period important?

The deferment period is important for both policyholders and insurance companies.

Importance for policyholders

The deferment period is important for policyholders for the following reasons:

1. Plan their expenses

   Policyholders have to meet financial obligations themselves during the deferment period in insurance. So, they need to understand how the deferment period can impact them financially and how they have to manage their expenses during that period.

2. Lower Premiums

   The longer the deferment period of the insurance policy, the lower the premium amount charged. Lower premiums will ultimately benefit the policyholders.

Importance for insurance companies

The deferment period is important for insurance companies or insurers as they can offer another policy to the policyholder at an affordable premium. They assume that the insured has borne the expenses by themselves.

The deferment period is important for insurance companies for the following reasons:

1. Offers another policy

   In the deferment period, policyholders have to bear their financial expenses and the insurance company will pay them nothing. During this period insurance companies offer the policyholders another policy at affordable premiums. Most probably the policyholder will purchase the policy which is ultimately beneficial for insurance companies.

2. Earn extra benefits/ income

   The deferment period is an ideal way for insurance companies to earn an extra income on the policyholder’s maturity amount as benefits have to be paid to the policyholder after the end of this period.

Conclusion

Having a clear understanding of the deferment period in insurance is necessary for both policyholders and insurance companies. It helps policyholders plan their finances as they will not get any money from insurance companies. Moreover, insurance companies can offer them another policy as policyholders have to bear expenses by themselves.