Policy Lapse

What Happens When a Life Insurance Policy Lapses?

A lapsed insurance policy stops you from being able to use any features of the policy. This blog will provide a brief overview of the lapsed policy.

Written by : Knowledge Centre Team

2026-01-16

3003 Views

10 minutes read

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If you have an insurance policy, you must pay regular premiums to keep the coverage active. If you stop paying premiums, the policy lapses, 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 the policy lapse meaning and avoid the policy from getting lapsed.

Key Takeaways
 

  • A policy lapse occurs when you miss premium payments, causing your coverage to stop
  • If your policy lapses, it means you lose all benefits and may need to follow specific steps to revive it
  • Non-payment of premiums, missed deadlines, or failure to renew can lead to a policy lapse
  • You may need to pay overdue premiums and provide proof of health to revive a lapsed policy
  • Consider auto-debit options, reminders, or single-premium plans to prevent a policy lapse

What Does Policy Lapse Mean?

Wondering what a lapsed insurance policy is. A Life insurance lapse means that a life insurance policy is no longer active.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 premiums. 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.

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What Causes a Policy to Lapse?

There are several reasons why a policy may lapse. The most common reasons are listed below:

  • A life insurance policy may lapse for several reasons: the most common cause being non-payment of premiums. The policy becomes inactive when you miss premium payments and do not clear them within the grace period. However, there are other factors that can also contribute to a lapse
  • Lack of Communication with the Insurer: If you have changed your phone number, address, or email without informing your insurer, you may miss important reminders about upcoming premium payments, increasing the risk of policy lapse.
  • Insufficient Funds in Auto-Debit Accounts: Many people rely on auto-debit facilities for convenience. If your account lacks sufficient funds during the scheduled payment, the insurer may not receive the premium, potentially causing a lapse.
  • Forgetting Renewal Dates: In some cases, especially for annual or biannual premium payments, policyholders may forget the renewal dates, which can lead to missed payments.
  • Inadequate Understanding of Policy Terms: Misunderstanding the payment cycle, grace period rules, or policy benefits can also result in a lapse. Knowing 'when can a policy lapse' ensures you remain vigilant about deadlines.

What Happens if Policy is Lapsed?

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.

How to Revive a Lapsed Life Insurance 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 will be revived, and you may enjoy the standard benefits offered under the policy.

Steps 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 the reinstatement of lapsed policies:

  • Contact your life insurance company
  • Review your policy documents
  • Determine if you need to submit a written request
  • Pay your overdue premiums
  • Start paying your current premiums on time
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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:

  1. Buy a single-premium policy which requires only one 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.
  2. 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.
  3. There are a few other ways to avoid policy lapse in case you have to pay premiums at a defined frequency:
    • 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

Important Points Related to Policy Lapses

Understanding the implications of a lapsed policy is crucial for maintaining financial security. Here are some key points to remember:

  • Impact on Coverage: Once your policy lapses, you lose all coverage benefits. If an unfortunate event occurs during the lapse period, your beneficiaries will not receive the death benefit payout.
  • Reinstatement Conditions: In some cases, insurers may allow policy reinstatement within a defined period. However, this often requires clearing outstanding premiums and may involve additional steps such as medical assessments.
  • Possible Increase in Premiums: When reinstating a policy, insurers may review your current health status. If your health has deteriorated, you may face increased premiums.
  • Effect on Policy Benefits: Some benefits may be reduced or altered, even if reinstated, depending on the insurer's terms. Understanding 'policy lapsed meaning' is vital to grasp how reinstatement conditions work.
  • Grace Period Awareness: Insurance providers generally offer a grace period of 15-30 days after the premium due date. Paying within this timeframe can prevent your policy from lapsing.
  • Penalties and Charges: If your insurer permits policy revival, you may need to pay interest or penalties on overdue premiums.
  • Impact on Future Insurance Applications: A lapsed policy may affect your credibility with insurers. When applying for new medical insurance plans, insurers may view past lapsed policies as a risk factor, potentially influencing premium rates or coverage options.

Conclusion

Insurance companies offer many methods of reinstatement for your lapsed policy. To avoid your policy from lapse in the first place and enjoy the benefits, you must maintain your premium payments. Understanding what a lapsed policy is and how to avoid it is important for policyholders to keep track of.

Glossary:

  1. Term Plans:  Term Insurance plans are simple life insurance plans with adequate cover to ensure the long-term safety of your family’s finances.
  2. Grace Period: A set length of time after the due date, during which payment may be made without any penalties.
  3. Surrender Value: The amount a policyholder is liable to receive when terminating their policy before its due date.
  4. Reinsatement: It is the process of restoring a lapsed insurance policy by paying overdue premiums within the permitted time frame
  5. Insurability: It refers to an individual’s ability to qualify for insurance coverage based on factors like age, health, income, and risk profile
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FAQs related to Policy Lapse

If you do not pay your policy premium on time, your insurer will no longer be able to provide coverage for you. A late fee charge will be attached to your premium if you make a late payment.

A payment is lapsed when the terms of insurance are no longer active due to the policyholder failing to make the necessary payments to keep their policy active.

Usually, in the case of a lapsed life insurance policy, there is no provision for a lapsed policy refund.

A surrender value in insurance policies is an amount the insurance agency pays to a policyholder if they terminate the policy before it has matured.

Yes, a lapsed life insurance policy can be surrendered. If you choose to discontinue a lapsed policy and surrender it, you will get the surrender value, and the policy will be terminated.

A claim made under a lapsed life policy will only be given if the policy was reinstated after its initial lapsing.

If a life insurance policy lapses and is not surrendered, coverage stops, benefits end, and the policy remains inactive without protection.

Generally, no refund is available for a lapsed life insurance policy unless it has acquired surrender value under the policy terms.

A claim usually cannot be made if the policy was lapsed at the time of the covered event, as coverage is inactive then.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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