Simplifying Life Insurance in India
What Happens When Your Life Insurance Policy Lapses?
What Does Lapse Mean in a Life Insurance Policy?
While opting for an insurance plan, every policyholder must pay a predetermined premium to keep the policy active. Now, if the policyholder misses the mark of payment due to any reason, it will lead to a policy lapse. In other words, the agreement between the insured person and the insurance company will turn inactive.
A life insurance policy becomes 'lapsed’ if there is a missed premium or the cash surrender value gets exhausted. Under such circumstances, both the policyholder and their loved ones will no longer get life coverage or death benefit from the insurance policy.
What Causes a Lapse in a Life Insurance Policy?
An insurance plan will not lapse immediately, even after you fail to pay the premium before due date. At the time of issuing an insurance policy, insurers provide a ‘grace period’ during which the advantages under the policy will stay active.
In most cases, this grace period is 30 days from the day the policy commences. If you pay the premium within this grace period, your insurance plan will remain active. However, failing to do so will cause your policy to lapse.
Can a Lapsed Insurance Policy be Restarted?
Most of insurance companies pre-set a particular time limit within which you may renew your life insurance policy. This period may vary from insurer to insurer and it depends on the kind of insurance policy you have selected. Furthermore, insurance providers charge an amount of interest as a penalty on missed premiums on the basis of your type of policy and payment history.
In order to restore the policy, you need to pay the outstanding amount of premium, alongside the interest. As soon as these remaining amounts are cleared, your lapsed insurance policy will get active once again and enable you to enjoy the benefits as earlier.
How to Avoid Life Insurance Policy Lapse?
Pay Premiums Timely
An ideal way to avoid a life insurance policy lapse is by paying your premium dues on time. However, if you are unable to make the payment, try not to go beyond the grace period. Make your own calendar, and set reminders so that you do not forget about the payments. This is the best way to avoid skipping your premium timely.Choose Premium Payment Mode Sensibly
Life insurance plans are meant for a long period. The insurance companies allow policyholders to pay their premiums quarterly, half-yearly or annually in instalments. The policyholder needs to choose this mode of premium payment while buying the policy. Paying monthly or quarterly is less burdensome than yearly payments. Choose the mode of payment wisely so that paying the premium does not become problematic for you.Opt for Insurance Within Your Budget
After considering financial status and liabilities, you have to plan your budget accordingly. It is important to note that an insurance plan is a long-term commitment. There is no surety that your present income will remain the same throughout your life. For this, various types of life insurance policies are available for insurance buyers. Thoroughly consider your financial goal while choosing an insurance policy.Go for an Automatic Billing System
Having a habit of forgetting and missing out on premium payment dates can be problematic as it may cause your policy to lapse. However, if you use credit cards to pay the premiums online, you can go for an automatic billing system. When you adopt this payment method, the money will automatically get debited from your account on the mentioned date, and the policy will remain active. In this way, you will not miss the premium payment mark.Update Contact Details
Another important thing a policyholder should be aware of is that the contact details stated in the insurance policy copy needs to be updated whenever required. Generally, insurers send updates to the contact number and mail ID declared in the policy copy or proposal form. Therefore, it is essential to update your contact details so that you do not fail to get information about reminders and updates from your insurance provider.Reinstating the Policy
If your policy lapses even after following the above measures, you can still reinstate the plan within a span of 2 to 5 years from the date of lapse. You need to repay the entire premium and submit declarations of occupational stability, health, etc. Most insurers charge a penalty for missed premiums. However, it entirely depends on the insurance company's decision whether they will let you reinstate the policy.What Is the Grace Period for Life Insurance Policies?
The insurance grace period defines the specific time following the due date of premium in which policyholders can pay their premium without lapse of the coverage. Precisely, grace period defends a policyholder from loss of coverage instantly in the event they delay paying the premium due to any reason.
Depending on the type of insurance plan, its grace period can differ from as short as 24 hours to as long as 30 days. Also, the grace period can vary depending on the mode of premium (for example, 15 days for quarterly and half-yearly and 30 days for yearly).
So, from the above discussion, you have hopefully understood about life insurance policy lapse and why it occurs. So, when you opt for life insurance, make sure that you pay out its premiums on time. In addition, follow the precautionary measures as stated above so that you can avoid lapse of your insurance cover.
FAQs About Policy Lapses in Life Insurance
For how long can a life insurance policy be revived?
Can I surrender a lapsed policy?
What is the difference between lapse and surrender?
Can a lapsed life insurance policy be activated?
Important Guides related to Life Insurance
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
