As a policyholder, you should be aware of the the situations in which insurance policy is considered a 'lapsed' policy and what can be done if you have not been able to pay up on time.
A lapsed policy can take away the insurance benefits associated with it. Every policyholder needs to be careful to pay the premium on time to ensure that the policy remains operational. However, there will be instances when policies will lapse due to oversight or circumstances which leads to non-payment of the premium.
As a policyholder, you should be aware of the the situations in which is policy is considered a ‘lapsed’ policy and what can be done if you have not been able to pay up on time.
“A lapse means a life insurance policy is no longer an active contract. A life insurance policy will lapse when premium payments are missed and cash surrender value is exhausted on a life insurance policy. The term lapse refers to a “lapse in coverage”, meaning the life insurance contract will no longer pay a death benefit or provide any insurance coverage for the insured person. A policy will only lapse after a grace period has passed, and most companies will allow their clients to reinstate their policies for a short period after the policy has lapsed without further underwriting,” Saroj Satapathy, CEO, Ideal Insurance Brokers Pvt Ltd.
Mahavir Chopra, Director, Strategic Initiatives, Coverfox, explains: “Life Insurance policies lapse when a customer fails to make premium payments as per the term including the grace period. For instance if the payment term is monthly and customer does not pays the premium on the scheduled/specified date every month then the policy will lapse after a grace period of 15 days,” he said.
There are set processes to revive lapsed policies. In case your policy has lapsed here is what you need to do:
- A lapsed policy can be revived within 5 years from the date of the last premium paid by paying up the outstanding premiums along with interest charges.
- A lapsed policy if revived within 6 months can be reinstated without fresh medical reports by paying the outstanding premiums along with the interest charges.
- In case more than 6 months have passed since the expiry of the policy, then you may have to submit a certificate of good health along with interest, penalties and all premiums overdue to the insurance company. The insurance company has the right to evaluate the proposal, request for medical checks, introduce some new terms or increase the premium.
- Again, if the policy has expired more than 6 months ago, then one should check with the said insurance company with regards to any special revival schemes that are running with the company. During such schemes, policyholders can revive their lapsed policies with reduced late fee and relaxation in medical requirements.
- If the policy has been in force continuously for over 3 years, then it acquires a paid up value. A surrender value on a policy is available only if the plan has been in force for continuous 3 years.