What is a lapsed policy?
- Lapsation means that an insurance policy ceases to exist.
- A policy lapses if the holder fails to pay premium after a stipulated grace period of 30 days for a policy.
- When policyholders miss their premium payments, they are no longer protected under the insurance.
- If the policyholder dies, the nominee will not be able to avail the claim, as the policy had lapsed and there was no risk cover.
Why do insurance policies lapse?
- Mis-selling of the product. This is like an agent trying to sell a life insurance policy to a 70-year-old with no immediate liabilities, he/she doesn't need it.
- Insurance is a long-term policy. Ensure that you will be able to continue the policy keeping in mind your future obligations before signing up for an insurance policy of any kind.
- Sometimes, when your agent leaves the industry, it leaves you hanging as well. Your agent knows your financial history, needs and abilities.
How can you revive a lapsed policy?
- The revival of a policy varies from company to company. It also depends on the duration of its lapse.
- Your first attempt at reviving a policy should be within the grace period.
- Monthly premiums usually have a grace period of 15 days, while yearly, half-yearly and quarterly premium payment policies have a grace period of 30 days. If you ensure payment within that period, all benefits remain intact.
- If you miss the grace period, then you can opt for revival within six months of the first unpaid premium. This way, you need to pay only the premium due along with interest, without having to make any declarations of your health.
- If you miss the six-month mark as well, your insurance company may ask you to provide medical declarations.
What are the key points to remember?
- Ensure that while reviving your policy, your insurer draws up a fresh contract.
- The more you delay reviving your insurance policy, the process gets more cumbersome. Additionally, your insurer may impose high penalty fees.
- In case your policy is not revived within the stipulated period, the company is bound to pay you the surrender value.
How can you avoid Lapsation?
- ECS-Electronic Clearing Service is one of the best ways to ensure the premium money is automatically deducted from your bank account.
- Before you sign a life insurance contract, make sure you're aware of your capabilities. Do not opt for lump sum payment if you think it'll burn a hole in your pocket.
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