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How to Reinstate a Lapsed Life Insurance Policy?

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 favoured 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 “One time payment” or “Limited period payment”.

Reinstating a Lapsed Policy

Mr. Daniel aged 25 has started financial planning for his future and has selected life insurance policy as a means of saving for his future. He has taken a term insurance policy for a life time period and has chosen the payment mode as Yearly payment. He didn’t default the payments on his life insurance policy till the age of 30 years. Due to recession he has lost his job and was unable to make his ends meet. In spite of receiving continuous reminders from the life insurance company he didn’t make the payment which was due for the year. After a certain period of time he received a mail stating that his policy is lapsed.

Advantages and Disadvantages of Reinstating a Lapsed Life Insurance Policy

A life insurance policy lapses when premium payment is not paid during the grace period then the policy. If the premium payment is not done during the grace period then the policy will have lapsed and the customer would have the option to either reinstate the lapsed policy or take a new policy. Advantages of reinstating a lapsed life insurance policy are medical check-ups, Incontestability Clause; the reinstatement of a policy requires the payment of premiums for the lapsed period along with the penalty. The main disadvantage of reinstating a Lapsed Life Insurance Policy is premium rates and a low grace period.

Can a Lapsed Life Insurance Policy be Reinstated?

Yes, lapsed life insurance policy can be reinstated. The policyholder needs to make an application for a revival period to the insurance company. First take advice from insurance claims advisors on our website or if need help call: 1800-123-4003.

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

Grace Period in 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 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 payment due. This grace period helps the customer to have the life insurance policy in force.

Due to Corona virus 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 of 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 do the payment within the grace period in term life insurance policy will be lapsed and the benefits and coverage under the life insurance policy cease to exist till it is reinstated.

How to Reinstate a Lapsed Life Insurance Policy:-

The life insurance policy lapses if the payment of premiums is not made within the grace period. In case the policy is lapsed, 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 risk taking capability.
If you are going for reinstatement of lapsed life insurance policy then the insurance company may ask for medicals and other requirements for reinstating a lapsed insurance policy, which was not asked at the time of policy issuance. This is due to the age factor and the risk associated with it.

For reinstating 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 penalty to reinstate the lapsed life insurance policies. The greater the lapsed period of time the higher would be the penalty.

It is very important to note that once the life insurance policy is lapsed, 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.

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