An unfortunate course of events sometimes makes us default on our commitment, be it paying EMI or renewing an insurance policy. Here are suggestions on how to avoid it.
In professional business, commitment is the key to every decision and deal. In case, one party does not honour a commitment, there is no reason for the others to abide by theirs.
At the time one signs a document to pay through a cheque, procures a loan or initiates a mutual fund SIP, one basically agrees to honour the terms and conditions of the commitment failing which the other party is also not obliged to abide by the commitment which they made.
Many a times, an unfortunate course of events may lead to a lapse in keeping the commitment. Though the lapse is unintentional and situational, one is always best advised to be prepared, and to avoid a default. Let us look at the most common situations where financial commitments are not kept.
Lapsed Insurance Policy
It is not rare to hear about the lapse of an insurance policy. However, it is what the insurance company resorts to in the final stage. Usually, after the due date, a period of 15 to 30 days is extended as a grace period to the policy holder to pay the premium with some interest and some additional requirements.
In the case of life insurance, a policy lapse is a situation, where you lose the life cover. In such a case, where traditional policies and Ulips acquire paid up values after 3-5 years, a lapse before this time means that the life cover and investment stand forfeited.
In case of the vehicle insurance lapses, driving your own vehicle could become illegal if proactive measures to revive the policy are not taken.
Up to a period of six months from the date of lapse, it is possible to revive the policy by paying the premium with an interest. However, after six months, a fresh contract with additional requirements could be your only way out.
Minimum Bank Balance
Except for the ‘zero balance’ accounts, most banks require a certain minimum balance to be maintained in the savings account and current account. This value is generally expressed as the minimum average balance for the period of a month or quarter. This value varies from Rs 300 to Rs 10,000, depending upon whether you hold your acco-unt in a large private bank or a small one.
The easiest way to not falter on this commitment is to keep a check on your expenses and maintain a personal record of transactions as well.
Skipping EMI
If one fails to honour one’s obligations of debt, it could lead to different kinds of penalty. In this situation, the lending bank will not seize the property or vehicle in the next month but after EMIs are skipped for three consecutive months, a notice may be served. If ignored and the EMIs still remain unpaid for a period of six months, the loan is declared to be a non performing asset or NPA and an auction may follow.
In this situation, the only way out is to assure the lending authority of your reason for skipping the EMI as a genuine one. You could request the lender to relax the rules in consideration of your case and give you a grace period after which you would be ready to pay the regular EMIs. This would work if your previous track record stands by what you claim.
Dishonoured Cheques
One is required to maintain sufficient balance in their bank account to honour the cheque one has signed in a person or company's name. Since a cheque is a liability, it is up to one to ensure that it does not bounce otherwise an outward return cheque penalty is to be dealt with. Starting from Rs 300, this penalty could go up in value, depending on the account held and the number of defaults.
If the funds are not available, a post-dated cheque is a good option. Besides, you could always request the other party to deposit the cheque at a desirable date. In addition to these lapses, missed premiums can adversely affect your credit score and future credit card approval chances.
Even in case of payments through credit cards, one has to be very cautious about the expenses one is making and keeping a tab on large expenses and missed payments is the best solution.
It is always best recommended to stay wary of your liabilities and honour your financial commitments on time and in full spirit to make the most of your financial plans. Otherwise, penalties and servicing additional requirements can be quite a drag and an expense uncalled for.
(The writer is the CEO of BankBazaar.com)
