A life insurance policy works on the simple fundamentals of business wherein you keep paying the premiums towards the policy and it stays active throughout the term of the plan.
However, if you miss any of the premium payments due to any reason, the policy lapses. With that, the benefits attached with the policy also lapse and you expose yourself to the financial risks associated with health or life emergency.
It is crucial to understand the phenomenon in details, so that you can equip yourself with all the information beforehand and take imperative steps, when needed.
Here, we are going to assist you with all the crucial data revolving around the life insurance policy lapses and revival thereof. Read on to get a thorough insight on the subject.
How the Policy Lapses?
Life insurance policies offer you the option of paying monthly, quarterly, half-yearly and yearly premiums against which you get an insurance cover on your life. If you don’t pay premiums on the date of premium because of any reason like you forgot about it or you don’t want to stay invested any longer or maybe you have financial crunch, the policy will lapse. However, the insurance company does offer you a grace period of 15 days (in case you pay monthly premiums) or 30 days (for all other payment terms including quarterly, half-yearly and yearly payments) to make the payment and get your policy active again. If you don’t pay even during this period, the policy will lapse and the insurer is no longer liable to cover you for life associated risks.
For whatever reason you didn’t make the necessary payments, if you change your mind and want to reinstate the insurance cover, there is a process and certain guidelines that need to be followed that are discussed below:
When can you revive the Policy?
The insurers want you to continue with the policy and therefore offer you various options to revive it. Also, the insurance laws state that if your policy has been active for at least 3 years, you will get a period of 2 years to revive it. There are some companies, though, like Life Insurance Corporation (LIC) that offer up to 5 years to revive your policy from the date they got lapsed subject to certain conditions.
How to revive the policy?
To help you understand the process, let’s consider the following two scenarios:
- If you decide to revive the policy within six months from the date it got lapsed, it is very simple. You can contact your insurer and make the overdue premium payment (including any interest) and get it revived
- If it’s more than six months from the date of lapse of the life insurance policy, then you’re required to pay the overdue premiums, penalty and interest payment that can be anywhere between 12-18% of the premium amount depending on the type of policy. In this case, though, the insurer will have the freedom to decide on whether to revive your policy or not. The insurance company might alter the original terms and conditions, may increase your premium amount, may ask for a health certificate or even ask you to undergo a fresh health check up to evaluate your present health condition. Only after analysing your updated health and financial situation would the insurer decide to revive your policy or altogether decline it.
Status of Benefits During Lapsed Policy/Policy Revival
During the lapsed period of any policy, the insured is not eligible for any insurance benefits. If the insured dies during the lapsed period, the family will not receive any death benefits except in certain cases if agreed to by the insurer. This has to be checked with your insurance provider and is not a mandatory obligation on the insurer. At the time of revival, all the benefits are reinstated, but there might be changes depending on the insured’s changed life situation.
Life insurance is a must have in your investment tools to safeguard your future. Ensure you make regular premium payments and even if for some reason you missed one, make sure you revive the lapsed policy as soon as possible!