Premium Payment Default (Prämienverzug)

Concept

Premium payment default refers to a policyholder’s failure to pay a due insurance premium on time. Insurance contract law fundamentally distinguishes between default in paying the first premium, which, if unpaid, can generally result in a complete absence of coverage from the outset, and default in paying a renewal premium, for which a graduated reminder procedure including a grace period is provided.

Legal Consequences of Default on the First Premium

If the first premium is not paid on time, the insurer is, under most legal systems, relieved of the obligation to pay benefits until payment is made, provided the policyholder was previously informed of this consequence through a separate notice; if an insured event occurs before the first premium is paid, no coverage generally exists in that case.

Legal Consequences of Default on a Renewal Premium

In the event of default on a renewal premium, by contrast, the insurer is required first to issue the policyholder a qualified reminder notice with an appropriate grace period before it may deny coverage or terminate the contract for payment default; this graduated procedure is intended to protect the policyholder from a sudden and unforeseeable loss of coverage.