How to revive a lapsed life insurance policy?

Mar 25, 2019 | 6 months ago | Read Time: 3 minutes | By iKnowledge Team

As per IRDAI rules, insurance companies must offer their clients an opportunity to reinstate their lapsed policy within two years of a lapse. Here’s how.

Insurance policies offer coverage if you pay premium. But what happens when for some reason you miss paying the premium? Your policy gets terminated and so do the attached benefits. Mr. Ajay Pathak, 35 finds himself in this situation. He forgot the monthly premium payment for his term insurance policy, because of which his policy lapsed. But, he has a chance to reactivate his policy in the revival period.

As per IRDAI rules, insurance companies must offer their clients an opportunity to reinstate their lapsed policy within two years of a lapse. Thus, life insurance companies present specific offers to revive un-renewed policies with concession or exemption of fines.

When do insurance policies lapse?

Insurance companies offer an opportunity to make premium payments monthly, quarterly, half-yearly and annually. They also offer a grace period of 15 days for monthly payments and 30 days if paid quarterly to make your premium payment. If you fail to pay even during the grace period, your policy ceases to exist and the insurer is not liable to provide you any coverage. However, policy lapses vary, depending upon their type. In Mr. Pathak’s case, his term insurance policy got deactivated as soon as he forgot to pay his premium. He had to forfeit all the benefits and premium paid thus far.

For ULIPs- The policy lapses if you fail to pay premium in the first five years or during the lock-in period. Your money is moved to something known as a discontinuance fund and a discontinuance charge of a maximum of Rs. 6,000 is levied, which gradually reduces to zero. If you fail to pay premium after the lock-in period, your insurer offers you an option to either surrender or revive your policy. You also have an option to modify and convert it into a paid-up policy, albeit with a reduced sum assured, such as with such as Aegon Life’s iInvest Insurance Plan.

Traditional insurance policy-You risk forfeiture of all the premiums and the discontinuance of a traditional insurance policy if the premium is not paid before it acquires a surrender value- i.e. before it becomes paid-up. In case the policy is paid-up, it remains active with a reduced sum assured.

Status of benefits in case of lapse
In case your policy lapses, you won’t be eligible to any of the benefits associated with it, during the period the policy remains inactive. In case of your death, your family won’t receive any compensation from the insurer.

How to reinstate the lapsed policy?
Revival of policy is contingent upon the time passed since the lapse. According to the rules of insurance, if your policy has been active for three years, you have two years to revive it. Reinstating a lapsed policy is easier, if done within the first six months of lapse. Reviving the policy after six months attracts heavy penalties and interest payments — anywhere between 12-18% of the total premium — along with the overdue premium. However, in this case the insurer has the freedom to decide whether to revive your policy or not. They may revive your policy with some conditional charges and an increase in premium amount. You could also be asked for a health certificate or a fresh health check-up to assess your current health. Only after a thorough analysis of your health and financial condition, will the insurer decide to revive or decline your policy.

Insurers also allow you to revive your policy online in a simple, quick and hassle-free way.

 

Conclusion
Negligence in paying your premium before the due date exposes you and your family to financial risk. Do not compromise on the security of your family and make sure you are prompt with regular premium payments and keep your policy alive and kicking and enjoy its benefits uninterrupted and glitch-free.

 

II/Mar 2019/4898


Calculate premium for your Term Plan

Prev
How to Chalk Out a Perfect Financial Plan?
Next
5 Things That Venture Capitalists Look For
GENDER
Date of Birth
DO YOU CONSUME TOBACCO?
Annual Income
Sum Assured
Select Cover Upto Age
Full Name
Mobile
Email ID
Your Monthly Premium for Aegon Life iTerm Insurance Plan

MOST READ

  • Mar 25, 2019
  • |
  • Read Time: 3 minutes

Section 80C, 80CCC & 80CCD Tax Deductions Explained

  • Mar 25, 2019
  • |
  • Read Time: 3 minutes

Tax Structure in India, Explained

RELATED ARTICLES