Article by Amit Roy on 'Policy Lapsation' appeared in Financial Chronicle Newspaper​

Thursday, February 12, 2015

Think before you let a policy lapse

 The first step to battle any kind of personal financial crisis is to cut down unwanted expenses.  A lot of times, insurance premium also get clubbed in ‘unnecessary expenses’ and buyers tend to let the policy lapse without realising the far reaching effects it can have on the financial health. 

Letting a policy lapse, for any reason, results in no protection, and no insurance cover for the family in case of an untoward emergency. No insurance cover and nil protection for the family when they need it the most can be a huge setback. A lot of times, unfamiliarity with the consequences of non-payment of premiums are also to be blamed for a policy lapse.

Keeping consumers’ interest in mind, all policies come with a grace period of 30 days which can be considered as a buffer in case of a delayed premium payment. If a policy has lapsed due to ignorance about the policy structure or lack of adequate funds to pay premiums, a reinstatement can be availed. As per terms and conditions of a policy, insurers offer a policy revival or reinstatement within a set period of time.

However, once this period is crossed, reinstatement also stands cancelled and policy lapses without offering any benefit, including the sum assured. It could turn out to be a costly affair to end all the money already put through premiums.  Therefore, it is recommend that buyers also evaluate reinstatement factors before buying a policy because any revival beyond the designated period calls for a fresh process, starting from medical check-up and procurement of documents, as specified. In such cases, the premiums may turn out higher after factoring latest mortality charges, assuming the insurer has aged and medical condition has deteriorated or suffered a critical ailment. Thus, the new policy could prove expensive than the previous one.  It is tedious to first let a policy lapse then buy it again at an increased cost.

The most convenient way to avoid these complications is to pay a monthly premium by mandating ECS (electronic clearing services) to your bank account. This saves off the financial load of annual premiums and gets accounted in a monthly budget. With a set routine, buyers are less likely to feel burdened if any financial crisis occurs. Insurers encourage buyers to read the policy document in detail before buying it. A buyer can also approach the customer care call center for any doubts related to the policy.

 It is always advised to first save then spend, therefore, make provisions for all investments and policy premiums instead of allowing them to become redundant. Insurance is one of the primary arrangements for personal finance, majorly because it is meant for the family. It should not be clubbed with unnecessary expenditure and discontinued. Think before you decide to discontinue it, as some of your money has already gone in creating that wealth.

  •           By Mr. Amit Kumar Roy, Chief Agency Officer, AEGON Religare Life Insurance

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