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The procedure of lapsed life insurance policy

Have you found that your life insurance policy is expired? Now, are you thinking of a way to renew your policy without any delay?

We are here to tell you about the life insurance revival process which restores your lapsed life insurance policy without dissipating your policy coverage.  This revival process depends on the type of your life policy as well as the duration of your policy lapse. Reviving your life insurance policy indulges some procedures which successfully restore your lapsed life covers.

Reinstatement is the primary phase where you will have to submit all your policy documents which are decided on the duration of your policy lapse and your revival application date. Later, you need to pay the delayed premium sum along with the interest to your insurer, sometimes with a penalty, where your interest and penalty will be decided by your insurer.

Now after submitting the necessary documents and paying unpaid premiums on time will let your request for insurance policy revival to process, which is the third stage. Now you may have to submit an insurance certificate or a health statement to your insurer by carefully filling the form.

Finally, your lapsed life insurance policy starts covering your life again, but we advise you to check your new insurance policy document for any new clauses as the insurers tend to add them sometimes. So, now you have known the process of revival of life insurance policy, then why wait to restore your lapsed insurance policies and restart your coverage.

A life insurance policy is an important tool in financial planning for many of us. There are different modes of Life insurance policy payments. One of the most favored modes by many is “Regular payment” in which the policyholder makes payment to the insurance company at regular intervals of time.

These regular intervals are Monthly, Quarterly, Half-yearly and Annual, out of which the Annual mode of payment is opted by many of us. The other payment types are “Time payment” or “Limited period payment”.

Can a Lapsed Life Insurance Policy be Reinstated?

It can be revived at any time within 5 years from the date of the first unpaid premium. To revive a lapsed policy, you need to pay the accumulated unpaid premiums along with the interest. Depending on the policy and the insurer, you will be paying an 8-9% penalty on unpaid premiums for a plan that will yield 5-6% returns.

How to Restore a Life insurance policy:-

The life insurance policy lapses if the premium payment is not made within the grace period. In case the policy lapses, insurance companies provide a time period to reinstate the policies. This time period can range from 15 days to 2 years and in some cases 5 years depending on the insurance company's risk-taking capability.

If you are going for reinstatement then the insurance company may ask for medicals and other requirements which were not asked at the time of policy issuance. This is due to the age factor and the risk associated with it.

For restoring the lapsed policy, you need to visit the branch and submit an application for reinstatement. Then the insurance company decides on the premium to be paid to reinstate the policy along with the other requirements to be satisfied such as medical tests etc.

Insurance companies sometimes charge interest and even levy penalties to reinstate the lapsed life insurance policies. The greater the lapsed period of time the higher would be the penalty.

In case of death of the policyholder when a policy has lapsed, if the policy has achieved life insurance without surrender value, then claims will be settled to that extent by the insurer. Id not, the policy loses all its benefits and no claims would be settled.

It is very important to note that once the life insurance policy lapses, you no longer have coverage. This means that the life insurance company will not pay the claim in the event of death.  So sooner you reinstate the lapsed policy, the better it would be for you.

  • Right Premium Paying
  • Understand Reinstatement
  • Policy Processing
  • Terms and Conditions

Steps to Considered Before Policy Lapse

Pay through ATMs: Certain insurance companies have tie-ups with banks where the banks provide you the option to pay the premiums through their ATMs. Choose auto-pay service if you opt for this, your premiums will be paid automatically through your credit card and this will reflect in the billing cycle of your card.

Electronic Clearing Service(ECS): Here you can give a standing order to the bank to deduct a particular amount towards the life insurance plan.

Check your resources: Before you opt for a policy ensure that it does not burn a hole in your pocket.

Grace period in a Life insurance policy:

A grace period is a time period given to the customer to pay his outstanding premium to prevent the policy from lapsing.

The grace period technically means that the policy is still active during the period and the payment is done during the grace period will be considered to extend the cover. Life insurance companies typically offer 30 days or 31 days grace period to the policyholders from the date of due premium. This grace period helps the customer to have the life insurance policy in force.

Due to the Coronavirus pandemic, life insurance companies have extended the grace period to 90 days. This is a big relief to customers who were unable to make payments for their life insurance policy due to the pandemic.

The life insurance policy would still be in force during the grace period and unfortunately, if you expire during the grace period, your nominee or beneficiary will be paid the claim proceedings after deducting the premium amount which is due.

But if the policyholder fails to pay within the grace period the life insurance policy will be lapsed and the coverage under the life insurance policy ceases to exist till it is reinstated.

Reinstatement or New policy?

A life insurance policy is a long-term policy where the premium payments can be made till the end of the policy period or for a certain period. It might be difficult to maintain the premium payments throughout the policy period due to certain unavoidable issues.

In case of nonpayment of premium within the due date, the grace period is provided to the customer to complete the payment of premium. If the premium payment is not done during the grace period then the policy will lapse and the customer would have the option to either reinstate the lapsed policy or take a new policy.

Let us understand the advantages of reinstatement of the lapsed policy over the new policy:

Benefits:

Medical Test: Every new life insurance policy requires medical tests which can be either done in person or through the phone. These medical tests determine the eligibility of the customer in terms of the sum assured, period of insurance cover, etc. In case of reinstatement in most cases, insurance companies ask for a declaration of good health from the customer.

Incontestability Clause: Almost all life insurance contracts have a clause of incontestability for a particular period of time i.e. 3 years. In simple terms, it means that the insurance companies cannot deny the claim in case of a misstatement by the policyholder after a certain period of time.

The exception being for the cases of fraud. If you take a fresh policy you have to satisfy the 3 year time before this clause becomes applicable. In case of reinstatement, after reinstating the lapsed policy this clause will not be applicable if the time period of 3 years has passed before the policy lapsed.

Terms & Conditions: The terms and conditions of the lapsed policy will continue if reinstated. But there could be some policies that were withdrawn from the market and would not be offered to you even if you are ready to pay the premium. So, reinstatement helps you to get hold of the policy with the existing terms and conditions.

We at policybachat have a dedicated team of insurance agents who will assist you in the complete process of car insurance, health insurance, life insurance, etc. Get tax benefits and saving schemes of your insurance as per the income tax act 1961.

Premium Payment: The reinstatement of a policy requires the payment of premiums for the lapsed period along with the penalty. Let us understand this scenario with an example: In 2010, Benz bought a term insurance policy when he was 30 years old. The policy was meant to cover him till the age of 60 years for a Sum Assured of Rs.1 Crore. For this sum assured he was paying a premium of Rs.20k per year till the end of the policy period.

Fast forward to 2017, he is 37 years old then and has paid premiums for 7 years which was around Rs1.4 Lacs. He had not paid a premium for the past 3 years and now in 2020, he wishes to reinstate the policy and contacts the insurance company.

The two years premium would amount to Rs.40k and the penalty charged by the insurance company is another Rs.15k. Now would it make sense to pay Rs.55k for the time he was not covered and reinstate the contract? Or go for a new policy for the reaming period of coverage?

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