Just two months back, Rakesh Gulati’s family was pleading with a life insurer not to reject their claim and rather pay the sum assured so that the family could meet everyday expenses. Rakesh – 38-year-old software engineer – died in a road accident while returning to his home in Delhi from his office in Gurugram. Rakesh died after paying premiums for several years for his term life insurance plan that he bought in 2015. Unfortunately, as things turned out, the insurer informed the family members that the last premium of Rakesh’s term life insurance policy was unpaid, hence his policy lapsed and the claim was denied.
It was devastating for the family to learn that Rakesh’s life insurance policy had lapsed as the lost benefit ran into almost a crore. Rakesh’s family is just one amongst countless other families who have to go through endless financial hardships due to lapsed life, health or motor insurance policies. Under most insurance policies, the worst impact of lapsation is on the policyholder and his/her financial dependents as apart from a loss of cover there is also a significant loss of several key benefits linked to the insurance policy.
All insurance policies – be it life, health or motor – come with an expiration date and if the policyholder forgets to renew the policy before the expiration date, the policy lapses. A lapsed insurance policy is equivalent to having no policy at all, as the cover provided by the policy is no more valid. Once your policy lapses, your insurer will not be able to provide financial aid. It is, therefore, advised to always renew your insurance policy on time before it lapses, as it will help you avoid any financial implications.
However, if any of your insurance policies has lapsed due to unavoidable circumstances, there are ways how you can review or renew your lapsed insurance policy and again ensure a financial blanket around you and your loved ones.
Term Life Insurance Policy
When you buy a term life insurance plan, the insurer gives you the option of paying the premium in monthly, quarterly or half-yearly instalments, or yearly as a lump sum. You may choose any of the options as per your spending capacity. Once you stop paying the premium of your term life insurance plan, the policy becomes inactive, however, it does not gets lapsed. The insurer allows you a grace period of 15 days – in case you pay the premium in monthly instalments – and a grace period of 30 days – in case you pay the premium quarterly, half-yearly or yearly – to re-activate your term plan. However, if you still do not make the payment for renewal of your term insurance, the policy lapses.
As per the insurance regulator’s guidelines, the maximum revival period for term insurance policies issued prior to December 2019 is 2 years while for policies issued after December 2019, the revival period is 5 years, post which the policy gets terminated. In order to revive a lapsed term life insurance policy, the policyholder needs to pay all the outstanding premiums – from the date of first unpaid premium up to the revival date – along with interest on outstanding premiums and taxes and levies as applicable. In certain cases, the insurance company may even ask for a medical examination again in case of policy revival.
Health Insurance Policy
Lapsation has the most significant side effects on health insurance as discontinuity of the policy leads to reset of waiting period for normal and pre-existing ailments, and complete loss of accumulated no-claim bonus. It is always advised to buy early so that the waiting period is served at the right time. If you are unable to renew your health insurance policy at the policy renewal date, the insurer gives you a grace period of 30 days to renew the policy. If you pay the premium within these 30 days, your policy is revived. However, if you fail to renew the policy even during the grace period, the policy is lapsed and cannot be ever revived. The only solution you will be left with is to buy a fresh health insurance cover under which you will need to serve a fresh waiting period.
Motor Insurance Policy
If you do not want to lose out on the no-claim bonus, it is advised to revive your lapsed motor policy within 90 days or you will lose the entire no-claim bonus that can go as high as 65 per cent of the own damage premium and is typically worth several thousand in case of a mid-sized car. To renew the lapsed policy, you can contact the insurer directly or through intermediaries. Moreover, considering the ongoing COVID-19 pandemic, you may also take advantage of the self-inspection video feature for physical verification of your vehicle. Under this feature, all you need to do is upload a video and some pictures of the vehicle on the insurer’s app and get the policy renewed within a few hours without the need of contacting an agent.
(By Amit Chhabra, Head-Health Insurance, Policybazaar.com)