If you have an insurance policy, it is necessary to pay regular premiums to keep the coverage active. If you stop paying premiums, the coverage will lapse and you will be uninsured. This could leave you vulnerable to high medical costs if you are diagnosed with any disease in the future. In the case of term plans, no amount will be paid to your family in case of your unfortunate demise. Therefore, it is important to know what a lapsed policy means and avoid the policy from getting lapsed.
What does Policy Lapse Mean?
A policy lapses when a life insurance policy is no longer active. It may lapse for a variety of reasons, but the most common reason is non payment of premium. If you do not make the payments within the grace period, the policy will lapse.
It occurs when a life insurance policy expires without being renewed or converted to another type of policy. In the case of your unfortunate demise, the lapsed policy will not pay the death benefit.
What Happens to Lapsed Policies?
If you allow your insurance policy to lapse, it will be cancelled. You will then lose any coverage and will not be able to make any future claims on the policy. In some cases, the policy may be reinstated if you pay back all of the premiums that you have missed. However, the coverage will usually be reduced, and you may end up paying a higher premium.
A lapsed state means:
- The policy has not acquired a surrender value, and
- For which you have failed to pay the due premium within the grace period for the last 2 consecutive policy years
Can you Revive a Lapsed Policy?
It is possible to revive a lapsed policy, although the conditions for doing so vary by the insurance company. In some cases, the insurance company may require that the policyholder submit proof of insurability.
Most insurers permit a grace period within which you can pay and revive your insurance policy. This grace period is generally in line with the guidelines of the IRDAI and can also depend on the type of insurance plan that you have opted for.However, the insurer may levy a penalty on the missed premiums before reinstating the cover. Once the missed premiums and penalty amounts are paid, the policy would be revived and you may enjoy the standard benefits offered under the policy.
How to Revive a Lapsed Life Insurance Policy?
There are a few things you can do to revive a lapsed life insurance policy. The first thing you need to do is contact your life insurance company and let them know that you want to reinstate your policy. They will likely require you to submit a written request and may also require you to submit proof of good health.
Once you have submitted your request, the life insurance company will review your case and determine if they can reinstate your policy. Some steps that are routinely followed for reinstatement of lapsed policies:
Step 1: Contact Your life insurance company. The first step is to contact your life insurance company.
Step 2: Review your policy documents.
Step 3: Determine if you need to submit a written request.
Step 4: Pay your overdue premiums.
Step 5: Start paying your current premiums on time.
How to Avoid Policy Lapse?
The only way to avoid policy lapse is to pay the due premiums on time. You can use the simple ways given below to ensure that you deposit all insurance premiums on time:
- Buy a single-premium policy which requires only one single upfront payment. As there are no periodic payments, there is no question of remembering to pay premiums before due dates. This removes the chances of a policy lapsing due to default on premium payments.
- Opt for auto-debit from your account or debit/credit card: Auto-debit ensures an uninterrupted payment as long as there is a balance in your account/card.
- Set reminders for timely premium payments
- Keep track of policy dates and make sure to renew before the policy expires
- Contact your insurance company and opt for email/SMS reminders
There are a few other ways to avoid policy lapse in case you have to pay premiums at a defined frequency:
Timely Investments Maximise your Rewards from Insurance
Continuous coverage is important because it protects you from having to pay penalties for not having insurance. It is important to have both continuous coverage and insurance in case the unexpected happens. Make sure that you are covered by a good insurance policy, and that you have continuous coverage so that you or your family are not affected when they have to file a claim.
Also, if you have investment plans like iSelect Guaranteed Future or Invest 4G ULIP, you can enjoy maximum bonus pay-out for investing all premiums in due time. Both plans offer to reward long-term investors with bonus payments.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.