Moneycontrol
Oct 24, 2017 01:23 PM IST | Source: Moneycontrol.com

Has your insurance policy lapsed? Here's what you should do

If the grace period is over and no premium has been paid to make it active again, the policy will lapse and the beneficiaries will not get any sum assured after the death of the policyholder.

Santosh Agarwal

When it comes to securing the future for your loved ones, there is nothing better than a term insurance plan. It is the cheapest and safest way to provide maximum sum assured to the beneficiary if anything happens to you.

With really low annual premium rates and basic health check-ups, anyone can buy a good insurance plan and create a safety net for their loved ones.

What happens when you fail to pay your premium on time? Will that null your term insurance or you can revive it within a given time period? Let’s understand in detail.

What is an insurance policy lapse?

When you buy any kind of insurance, you have to pay a certain amount of premium every year till the term of insurance ends. For some reason, if you are unable to pay the premium due within the grace period provided by the insurer, your policy will be terminated. There is no way to reinstate an expired policy, and your only alternative will be to buy a new one – which is often more expensive than the previous one due to increased age of policyholder. If you have missed out paying your life insurance premium, here’s what you can do.

How can you revive a lapsed policy?

If you have failed to pay your insurance premium, your policy will be transferred to a grace period status, where ideally the insurance company is still accountable for paying the sum assured if a valid claim is filed for a death of the insured during this time period. Usually, an insurer will give you a grace period of 30 days for half-yearly and yearly payments, and 15 days for monthly payments – although, it can be different for different companies.

What happens when a policy lapses?

If the grace period is over and no premium has been paid to make it active again, the policy will lapse and the beneficiaries will not get any sum assured after the death of the policyholder.

Let’s take an example, suppose a person fails to pay the premium for a term plan and he/she meets with an accident and is found dead. Now, if the accident happened within the grace period and the family filed a claim, the insurance company will have to pay the benefit. However, if this accident happened after the lapse of the policy, then the insurers will not pay any death benefit to the family.

Although, a lapsed policy is not a complete waste, to make it useful again one has to go through the process of reinstatement. Many companies provide an option of reviving the lapsed policy; however, the process could be more expensive and involve another medical check-up and/or a penalty amount.

The process of making of lapsed insurance policy active again is called reinstatement - it can only take place when the grace period has ended and the contract between the policyholder and insurer is no longer valid. The reinstatement of a lapsed policy could be different for different insurers and depends on the elapsed time, the product type and the insurance cost etc. a policyholder can apply for it.

So, if you have missed paying your premium, you now know what to do to revive and continue your insurance.

(The writer is Head of Life Insurance of Policybazaar.com)

tags #insurance

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