Acceleration Clause

Insurance companies cater the needs of clients for an early back-up to any damages and losses that may come along their lifetime. In this way, possible bankruptcy on the part of the client will be avoided. Prior to this, policyholders should therefore pay the deductible and the premium rates indicated in the policy to keep the maximum coverage of their insurance policy.

What happens when the policy holder missed to pay the premium on the exact date? Would there be additional fees added to the policy?

In case the policy holder won’t be able to pay the premium on the exact date, the corresponding punishment will be written in the acceleration clause. An acceleration clause is a statement or a series of statements in a contract that allows the insurer or the lender to demand payment of the total balance or demand an additional payment due to breach of contract, bankruptcy, failure to make payments, and non payment of taxes on loaned property.

This usually happens in mortgages. When a borrower won’t be able to pay the lender on specific period of time when payments should be made, the lender will have the right to demand for an immediate payment of the remaining balance.

For instance, Mr. A signed for a contract to purchase a car from Mr. C for around $300,000 to be paid in 6 months, with monthly installment of $50,000. Mr. A paid the first three payments but on the fourth payment failed to pay. As stated on the acceleration clause, Mr. C would require Mr. A to pay immediately the remaining balance of $150,000 or forfeit his right to purchase the car without getting the amount he paid from his first three payments.

Once the acceleration clause has been invoked, the borrower is subject to pay right away the unpaid balance as well as the accumulated interest when the non- payment occurred.

There are numerous terms that are included in an acceleration clause. Loan covenant is one of them. Loan covenant prohibits buyers to resell the property without the permission of the lender expressed. This will ensure the lender of a secure payment of the outstanding balance if the borrower would want to end their business relationship. Another term is the disposition of the collateral used to secure the loan. This helps to make sure that an asset is to be collected from the borrower in case of non-payment.

Additionally, an acceleration clause is a compliance of the loan with the consequences at hand if terms are not honored. It would consist the dates of the payment and the due date as well as the steps the lender will take in order to penalize the borrower for the fault. This would also include the final amount to be paid after the due date and the complete termination of the loan.

Before signing to any type of contracts, one must to read and evaluate the written agreement and the points that are highlighted in the acceleration clause. If he would fail to read the document, whatever failure he’ll meet during the entire time of the contract will be his sole burden. Since such terms are already laid on to him, he is the only one responsible for whatever mishaps he’ll face in case of any shortcomings.