A policy lapse is a critical term to understand if you are buying a life in the insurance policy or already hold one in your portfolio lexicon. When a life insurance policy is no longer active, it lapses (expires). It can lapse for a number ofseveral reasons, but the most common one is the nonpayment of premiums.
The policy will lapse unless you make the payments within the grace period. The grace period for a life insurance policy is the duration after the expiry of the last date for paying the policy premium, given by the insurance to the policyholder to help them make the due payments.
In the event of your death, the lapsed policy will not pay the death benefit to your nominees. Hence, an insurance policy lapse is a serious situation that requires immediate rectification on the policyholder’s part.
The Consequences of an Insurance Policy Lapse
Your insurance policy will be cancelled as a result ofbecause of lapsing. You will subsequently be without coverage and unable to make any future claims under the policy.
Additionally, a lapsed state denotes that the policy has no surrender value and you have not paid the due payment during the grace period for the last two policy years.
How to Revive an Insurance Policy?
A lapsed policy can be revived, butalbeit the requirements differ depending on the insurance provider. In some situations, the insurance company may request proof of insurability from the insured.
Most insurers give you a grace period during which you can pay for and renew your insurance coverage. This grace period is always defined per the prevailing IRDAI directives and can also vary slightly depending on the type of insurance plan you have chosen.
However, the insurer may impose a penalty for late payments before reinstating coverage. Once the missed premiums and penalty amounts are paid, the insurance will be reinstated, and you can enjoy the usual benefits the policy provides.
The insured person has to submit a good health declaration for this purpose. At the same time, reviving a lapsed policy is more affordable than purchasing a new one. Revival requires paying the due premium amount with interest.
How to Avoiding Policy Lapses?
Bypassing a policy lapse is always vital since continual coverage throughout the policy tenure is essential. Lapses defeat the whole purpose of buying insurance in the first place.
Paying your premiums on time is the only way to keep your policy active. To ensure that you pay all insurance premiums on time, follow the easy steps outlined below:
- Get a single-premium coverage that requires only one upfront payment. Because there are no periodic payments, there is no need to remember to pay premiums on time. This eliminates the possibility of a policy lapse owing to nonpayment of premiums.
- Choose auto-debit or ECS (electronic clearing services) from your checking account or debit/credit card: Auto-debit guarantees that payments are made regularly as long asif your account/card has a balance.
There are a few other strategies to avoid policy lapse if you have tomust pay premiums regularly:
- Set up automatic reminders for timely premium payments.
- Keep note of policy expiration dates and renew before they pass.
- Call your insurance provider and request email or SMS reminders. Most insurers provide a method to reactivate your coverage if it has lapsed. But it is best to have your insurance coverage active at all times. To tailor the policy as per your convenience, you can opt pay your premium in a lump sum, monthly, semi-annually, or annually. Nowadays, you can also pay premiums directly through the insurer’s digital platform. As a result, you can avoid unnecessary tension and ensure that your loved ones are always safe.
Chirag Iyer - BFSI Enthusiast
Chirag is a writer and an avid reader who loves to drink coffee! His other interests include boxing, karate, and singing.