Life insurance policy is one of the most popular financial planning tools which can be planned and executed for a long term. Unlike other financial tools the premium paid or the amount invested in the life insurance remains active only till the time the policy is active. In other words the coverage is available as long as the premium is paid on time and the policy is not lapsed.
In case of the other financial tools such as Fixed Deposits in Banks or Mutual funds or Shares the existing funds tend to grow even if the new payments are not made. But the same is not in case of a life insurance policy; the life insurance premium payments have to be made for a specific period of time as specified in the policy copy, failing which will result in the policy lapse.
So, it is of utmost important to prevent the life insurance policy from being lapsed and here are the ways to avoid the life insurance policy lapse:
1. Pre plan the budget:
Life insurance policies are generally for a long period of time and the premium payments can be either made each year or for a limited period of time. The most common method of premium payment in life insurance is the regular payment method where the premiums are paid each year till the end of the policy period.
Since the time period is long it is highly advisable to plan and estimate the premium paying capacity of yours in future if you face any uncertain event such as job loss, marriage etc. The amount of premium to be paid each year ideally should not be more than 5% of your annual income.
Pre planning the budget for the whole policy period helps you to prevent the life insurance policy from being lapsed.
2. Make Payments on Time:
Life insurance policies are long term policies and require payments to be done periodically on time. If you fail to make a payment before the due date, a grace period of 15 – 30 days will be given to make the life insurance premium payment.
If the pending payment is not made during the grace period then the policy will lapse and the coverage will cease to exist. During the grace period the policy remains in force and the coverage is available without any reduction or termination. In case the policyholder expires during the grace period the claim amount is paid after deducting the premium that is due.
3. Automatic Billing:
If you are doing payments through your Credit card or Online then you can opt for Automatic Billing where the payment will be deducted before the due date and the policy will be in force without any fear of it being lapsed. It happens sometimes that you may not remember the due date of your policy and in those cases having an automated billing for your life insurance premium helps you to keep the policy live.
All you need to do is to give a standing instruction to your bank regarding the life insurance premium billing on a particular date every year. The bank deducts the premium either from your credit card or your account and sends it to the insurance company.
4. Contact Details:
The other important thing to keep in mind is that the contact details mentioned in the policy copy should be updated from time to time. Insurance companies usually send the updates and other communications to the phone number and mail id mentioned in the proposal form/ policy copy. In some cases the hard copies of the updates such as renewal reminders or premium payments are shared to your communication address.
Hence, it is of utmost importance to ensure that at any point of time your contact details should be updated so that you don’t miss the reminders and updates from the insurance companies. In case of chance in your communication address or contact details the same should be intimated to the insurance company and the endorsement is to be obtained from the insurance company.
The above ways can help you in preventing your life insurance policy from being lapsed and you need not undergo the headache of reinstating the lapsed policy. By following these methods one can ensure that the life insurance policy will not be lapsed.
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