Term insurance is one of the most important financial decisions you’ll ever make to secure your family’s financial future. It pays a fixed sum of money to your family if you pass away during the policy term. This money will help your family cover their short-term and long-term financial needs.
However, just buying term insurance is not enough. You must also ensure that you pay all your policy premiums on time so that your policy remains active until the end of the term. If you don't do the same and miss even one premium payment, there is a risk of your policy being lapsed.
Today, in this piece, we are going to discuss lapsed policy and the process of reviving it. But first, let’s discuss policy lapse meaning!
What is a Lapsed Policy?
If you fail to pay your premium by the due date i.e. the final date for making the premium payment, insurers offer you a grace period. If you don’t pay the premiums to the insurer during this grace period, your policy will lapse- meaning, it will expire or become inactive and you'll lose your coverage.
Understanding the Grace Period
The grace period is the additional time span given to policyholders during which they can pay the missed premium instalment without losing their insurance cover. Generally, insurance companies provide a grace period of 15 days for monthly premium payment mode and 30 days for other premium payment modes in Life Insurance after the original premium due date of your policy.
If you pay the premiums within the grace period, your policy will not end and you and your family can continue enjoying the benefits of the term cover.
However, if you fail to pay the premiums within the grace period, your policy will lapse, and you and your family will lose the term insurance coverage.
Please bear in mind that your insurance coverage remains intact during the grace period. So, in case you pass away during the grace period, the insurer will pay the sum assured to your nominees minus the premium amount you owe. However, upon expiry of the grace period, your term cover will immediately cease and no amount will be payable.
Let’s understand this with the help of an example-
Arjun takes a term plan of a sum assured INR 1 Crore for a duration of 40 years where he is required to pay INR 30,000 annually for the next 40 years. He has paid all his premiums on time for 30 years. However, he misses the annual premium in the 31st year due to oversight.
As per policy conditions, Arjun has a grace period of 30 days during which he can pay the outstanding premium amount. Arjun suffers a heart attack on the 20th day of the grace period and passes away. Since his policy is in the grace period, Arjun’s claim is payable & the insurer should settle the claim after deducting the last outstanding premium amount of INR 30,000.
Had Arjun’s death happened after the grace period (with a lapse of policy due to non-payment during the grace period), all benefits under his policy would have ceased and his nominee would have got nothing from the term insurance policy that Arjun painstakingly kept running for 30 years!
What Causes A Policy Lapse?
The main reason for a policy lapse is when you don't pay the required premiums on time, including during the insurer's grace period. This defines the policy lapse meaning - when coverage ends due to missed payments.
Below is a brief summary of the primary reasons for a lapsed policy -
1️⃣Missed Payment Payments
Your insurance may lapse if you fail to pay the required payment by the deadline. You can still make payments and prevent a lapse within the grace period that most insurers give. This grace period is usually 15 days for monthly payments and 30 days for other options.
2️⃣Failure To Pay Within The Grace Period
The insurance becomes invalid if you fail to pay the premium, even within the grace period. This implies that you are no longer covered or eligible for benefits, and the insurer is no longer obligated to make any payments.
3️⃣Ignoring Your Responsibility
It’s essential to understand your premium payment responsibilities and the terms and conditions of your life insurance policy. This knowledge helps prevent lapses and ensures uninterrupted coverage.
Thus, it's crucial to be aware of the premium due dates, make good use of the grace period, and understand the conditions of the insurance policy to prevent a lapse.
What Do You Need To Do When Policy Lapses?
If you have a lapsed policy, you must take immediate action to resolve the issue to regain your coverage. Here's a simple yet useful guide to what to do next -
➡️Review The Lapse Notification
You can start by carefully reading the notice that your insurer sent you. This will clarify the reasons for the policy's lapse, such as late premium payments or noncompliance with specific conditions. Identifying the cause enables you to take appropriate action to address it.
➡️Speak With Your Insurer
Next, immediately reach out to your insurance company. They can provide you with guidance on other options for reinstating the policy and a detailed explanation of what caused the lapse.
➡️Assess Reinstatement Options
The good news is that many insurers provide the opportunity to restore a policy that has lapsed within a specific time frame. Make sure to enquire about the procedure, possible costs, and if you will need to submit current medical records. Thus, understanding your possibilities for reinstatement provides you with a clear course of action.
➡️Finish The Revival Procedure
If reinstatement is possible, you can follow the revival procedure as specified in your policy or as directed by your insurer. Typically, this involves paying any unpaid premiums, including late penalty fees. Additionally, if the insurer requests it, be ready to submit the needed paperwork, such as a revival application or updated health records. Restoring your coverage depends on completing this procedure as soon as possible.
➡️Evaluate New Coverage
It could be time to look for new coverage if reinstatement is not an option or if your health situation has changed considerably. This can entail submitting an application for a new life insurance policy, but be aware that the premiums will probably increase. Given that you bought your expired coverage while you were younger, the cost of a new policy may vary depending on the state of your current health and your age. If it has been a long time since your initial purchase, the likelihood of the new premium being greater increases with the amount of time that has elapsed.
How To Revive A Lapsed Life Insurance Policy?
There is a simple approach to help you get your life insurance policy back on track if it has lapsed -
⏭️Submit A Request:
To get your lapsed coverage reinstated, first inform your insurer of your intention by calling or visiting their branch. In order for them to start the reviving process, be sure to communicate important information such as your policy number and the date the policy expired. Remember that each insurer may have a different application procedure for policy revival, so be prepared for it.
⏭️Acknowledge The Terms & Conditions
After receiving your request, the insurer will share the documents and information you need to proceed. Examine the terms and conditions carefully before renewing your policy. You can find these details in your policy document as well. Verify any further requirements, such as finishing medical examinations, submitting health declarations, making any required payments,etc.
Be aware of all criteria because some insurers could even ask for a separate proposal or revival form to be completed.
⏭️Pay The Amount Due
The next step in the revival procedure is to make the outstanding payments. In accordance with the terms and conditions of the policy, you will be required to pay all outstanding premiums, as well as any applicable interest and revival charges (late fees). Your insurer will inform you of the total amount due, and you can avoid further delays or issues by making sure that you pay within the allotted time frame.
⏭️Undergo A Medical Examination (If Necessary)
Depending on your age and the period of time the insurance has been inactive, the insurer may ask you to undergo a medical examination. Before reinstating coverage, they re-evaluate your current risk profile and health status as part of the underwriting procedure.
If you've developed a new medical condition, the insurer might take one of two actions -
- Add new terms or limitations to the coverage you have, charge more premiums (known as loading), or,
- In worst-case scenarios, reject your revival request altogether.
⏭️Wait For Confirmation
The next step is to wait patiently for the insurer to respond with confirmation once you have sent in all the relevant paperwork and paid the requisite amount. Before restoring your coverage, they will examine your application, re-evaluate your health, and confirm the payment information . Once everything has been verified, the insurer will send your revived policy document and a confirmation letter. For future use, make sure that you save these documents in a secure location.
⏭️Review The Terms Of The Policy
Now that your policy has been reinstated, take a minute to review its conditions carefully. Make sure you understand the specifics of the coverage and the upcoming payment schedule. Do not hesitate to get in touch with your insurer if you have any questions or concerns regarding the terms and conditions.
Important Note!
Keep in mind that you can revive or restore your policy with all the benefits outlined in your policy document, with or without any rider benefits (if applicable), only if the insurer is satisfied with your eligibility for coverage. This determination is based on the information, documents, and medical reports you provide during the revival process in accordance with the insurer's approved underwriting guidelines. The insurer must assess that your current health and risk profile still meet their criteria for the policy to be reinstated with full benefits.
How To Avoid Life Insurance Policy Lapse?
Keeping your life insurance policy active is crucial, and the good news is that it’s easy to avoid a lapse with a little planning. Here are some simple tips that you can use to help avoid the situation -
✅Know Your Payment Schedule
Keep track of your premium payments by setting reminders and being conscious of when they are due. It's always preferable to keep yourself ahead of the game by making payments on schedule, even if insurers usually provide a grace period for late payments.
✅Select An Affordable Premium
Make sure the premium for the life insurance policy you choose is within your financial capabilities. You can reduce the chance of falling behind on payments by selecting a premium that is in line with your income and financial objectives.
✅Setup Automatic Payments
Setting up automatic payments from your bank account is one of the simplest ways to avoid missing payments. Instead of using a credit or debit card, which often comes with expiration dates that can impede payment processing, it is preferable to use your bank account. You can choose e-NACH, an online method that enables payments to be taken directly from your bank account if it is connected to your Aadhaar, for even more simplicity. To keep informed at all times, don't forget to enable electronic notifications and set reminders on your calendar.
✅Keep Reviewing Your Policy
It's an excellent practice to examine your policy from time to time to ensure it still meets your needs. This keeps you updated on any modifications to the terms of the policy. Also, frequent check-ins guarantee that you are informed of any changes to the policy . Pay attention to information like the grace period for late payments and any penalties for the policy's expiration.
✅Revise Your Contact Details
Reminders regarding premium payments are typically sent by insurance companies via SMS, email, or letter. Make sure your contact information with your insurance company is updated so you don't miss any crucial notifications. In this manner, you'll receive notification of any policy revisions and premium reminders.
✅Communicate With Your Insurance Provider
Do not hesitate to contact your insurance company immediately if you anticipate that you may experience difficulties in making a payment. To accommodate your current financial circumstances, many insurers provide flexible options such as temporary payment plans or policy adjustments. Thus, by being proactive you can keep your policy active and save needless worry.
✅Assess Your Options For Premium Payments
Many insurance providers have flexible payment plans that let you select a frequency of payments that works for your budget. Explore payment options such as annual or semi-annual payments, as they may be more manageable compared to monthly instalments. You may lower your risk of missing payments and improve your planning with these approaches.
✅Maintain An Emergency Fund
In times of need, setting up an emergency fund just for your insurance premiums can be a lifesaver. By serving as a buffer, this fund makes sure you can keep up your premium payments even in the event of unforeseen costs. It's an easy method to safeguard your policy and be equipped.
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