Have you found that your life insurance policy is expired? Now, are you thinking of a way to renew your policy without any delay? We are here to tell you about the life insurance revival process which restores your lapsed life insurance policy without dissipating your policy coverage. This revival process depends on the type of your life policy as well as the duration of your policy lapse. Reviving your life insurance policy indulges some procedures which successfully restore your lapsed life covers.
A life insurance policy is one of the most important financial decisions that you can make. But, what if you lapse your life insurance policy? What should you do? This article discusses the importance of reviving your lapsed life insurance policy and how to go about it. But before diving into the topic, let’s understand what a lapsed life insurance policy is and what causes lapses. And when a life insurance policy lases in detail.
What is a Lapsed Life Insurance Policy?
A lapsed life insurance policy is a life insurance policy that has not been paid for by the insured and is no longer in effect. This typically happens when the premiums are not paid on time or when the insured dies.
The lapse period is a predetermined number of days or years from the date that the policy was taken out, after which it becomes void. The lapse period varies depending on the type of life insurance. If you have a lapsed life insurance policy, you may be able to reinstate it by paying all premiums owing and any applicable penalties.
When Does A Life Insurance Policy Lapse?
A life insurance policy lapses when the premiums are not paid or when it is canceled by the insured or the company. There are many reasons for a lapse in an insurance policy but the most common causes are the following
- The person who has the policy died
- The person who had the policy forgot to pay their premiums
- The person who had the policy changed their mind about wanting it anymore
- The insured person has purchased another life insurance policy, which will take precedence over their previous one
How to Revive Lapsed Life Insurance Policy?
The lapse of a life insurance policy is the most common reason for the need to revive a life insurance policy. Once an insurance policy lapses, the protection which comes with it ends. This indicates that the beneficiaries will not receive payment in case of your sudden death. So, you have revived your life insurance policy within the grace period mentioned under the policy. The grace period varies from company to company.
Procedure for Reviving a Lapsed Life Insurance Policy
If you have a lapsed life insurance policy, there are steps that you can take to revive it. Below is the procedure to revive a lapsed life insurance policy.
- Reinstatement is the primary phase where you will have to submit all your policy documents which are decided on the duration of your policy lapse and your revival application date. Later, you need to pay the delayed premium sum along with the interest to your insurer, sometimes with a penalty, where your interest and penalty will be decided by your insurer.
- Now submitting the necessary documents and paying unpaid premiums on time will let your request for an insurance policy revival process, which is the third stage. Now you may have to submit an insurance certificate or a health statement to your insurer by carefully filling out the form.
- Finally, your lapsed life insurance policy starts covering your life again, but we advise you to check your new insurance policy document for any new clauses as the insurers tend to add them sometimes.
So, now you have known the process of revival of a life insurance policy, then why wait to restore your lapsed insurance policies and restart your coverage? Life insurance is an important tool in financial planning for many of us. There are different modes of Life insurance policy payments. One of the most favored modes by many is “Regular payment” in which the policyholder makes payment to the insurance company at regular intervals of time. These regular intervals are Monthly, Quarterly, Half-yearly and Annual, out of which the Annual mode of payment is opted for by many of us.
How to Avoid the Risk of Life Insurance Policy Lapse?
The risk of policy lapse is one of the most common risks in insurance. But know how to prevent the risk? This is why it is important to have a well-structured plan to avoid this risk. Many different types of plans can help you with this and ensure you are not at risk for any issues. There are many points that you should keep in mind when it comes to policy lapse. Below are the points to avoid the risk of life insurance policy lapse.
- Pre-planning the Budget
- Make Payments on Time
- Choose Automatic Billing
- Update contact details frequently
- Be aware of the risks of not updating your policy
- Know what to do if your policy has lapsed
Steps to Considered Before Policy Lapse
- Pay through ATMs: Certain insurance companies have tie-ups with banks where the banks provide you the option to pay the premiums through their ATMs. Choose auto-pay service if you opt for this, your premiums will be paid automatically through your credit card and this will reflect in the billing cycle of your card.
- Electronic Clearing Service (ECS): Here you can give a standing order to the bank to deduct a particular amount towards the life insurance plan.
- Check your resources: Before you opt for a policy ensure that it does not burn a hole in your pocket.
What is Grace Period in Life Insurance?
A grace period is a period given to the customer to pay his outstanding premium to prevent the policy from lapsing. The grace period begins from the due date of the premium, and it is the time granted by us for you to make a payment without incurring any penalty or late fee. You can pay at any time during this period without being charged anything extra.
The grace period technically means that the policy is still active during the period and the payment done during the grace period will be considered to extend the cover. Life insurance companies typically offer the policyholders a 15 or 30 days grace period from the date of the due premium. This grace period helps the customer to have the life insurance policy in force.
Due to the coronavirus pandemic, life insurance companies have extended the grace period to 90 days. This is a big relief to customers who were unable to make payments for their life insurance policies due to the pandemic.
The life insurance policy would still be in force during the grace period and unfortunately, if you expire during the grace period, your nominee or beneficiary will be paid the claim proceedings after deducting the premium amount which is due. But if the policyholder fails to pay within the grace period the life insurance policy will be lapsed and the coverage under the life insurance policy ceases to exist till it is reinstated.
Conclusion
There are many reasons why a policy may lapse. It is important to review your policy annually and make sure that you are still eligible to receive coverage.
If you are currently insured, contact your life insurance company to find out if the policy has lapsed. If it is due to lapse, follow some ways to keep coverage for your life. Life insurance is important to ensure that you have enough insurance coverage so that your family doesn’t get left with anything if something happens to you.
It is highly recommended that you understand the life insurance policies before choosing to buy them to prevent unnecessary problems.
Related FAQs
Can a Lapsed Life Insurance Policy be Reinstated?
Yes, it can be revived at any time within 15 days to 2 years from the date of the first unpaid premium depending on the policy you have taken. To revive a lapsed policy, you need to pay the accumulated unpaid premiums along with the interest. Depending on the policy and the insurer, you will be paying an 8-9% penalty on unpaid premiums for a plan that will yield 5-6% returns.
What Happens When a Life Insurance Policy Lapses?
A life insurance policy lapses when the premiums are not paid for a certain period. The company will notify the policyholder and offer them an opportunity to pay their dues. If they do not take up this offer, the policy will lapse and the insurance company will no longer be liable for any claims.
Is There a Possibility to again take out the Lapsed Life Insurance Policy?
Yes, lapsed life insurance policy can be reinstated. A lapsed life insurance policy can be reinstated if it is within its grace period. The grace period varies between policies and companies. If a person wants to reinstate their life insurance policy, they would need to contact their provider and follow their instructions on how to do so.
What are the Things to Consider When Reviving the Policy?
Many things need to be considered when reviving the policy.
- Paying the right premium
- Understand reinstatement
- Know about the processing of policy
- Know about the updated terms and conditions of your insurer.
What are the Drawbacks of Life Insurance Policy Lapse?
It is important to understand that life insurance policies are not like any other product. They are a contract between you and the company, which means that if you fail to pay your premiums on time, your policy will lapse.
The lapse of a policy is not something that happens overnight. It takes some time for the company to realize that it has been neglected and then it takes some more time for them to cancel the policy. The average lapse period is around two years. The drawbacks of a life insurance policy lapse are
- You may lose all protection
- You may have difficulty getting coverage in the future