For insurance policies to be in force, it is vital to make the regular premium payments well before the due date of the policy. Non-payment of regular premiums could result in a lapsed policy that would yield no stipulated policy benefit. So in case death was to occur at such times, your family or loved ones would not receive any compensation/death benefit. Thus it is very important to ensure your policy stays in force and your family receives the financial protection the policy entitles them to.
When Does an Insurance Policy Lapse
The single most important reason when a policy could lapse is non -payment of premiums before the due date. In most cases, insurance companies do send policy holders a reminder well in advance so that premiums could be paid at least before the end of the grace period.
Unit Linked Insurance Plans that have acquired a paid up value however do not lapse even if the regular premiums have not been paid. ULIPs which have completed 3 policy years acquire a paid up value and continues to stay in force as long as the fund value is sufficient to meet the policy expenses.
Your Policy's Grace Period
All insurance policies offer a specific time period to make premium payments- known as the grace period. A grace period is the additional period of time given after the premium due date, to pay up premiums. Your policy continues to stay in force during the grace period and all benefits would be extended. So even though you may have missed your due date, if you are well within your grace period the policy does not lapse. If death were to occur during the grace period, the sum assured would be payable to your family. Insurance grace periods vary from 15 days to two months depending on insurer to insurer and policy to policy. Post this grace period, all benefits would cease to exist.
Steps to Revive a Lapsed Policy
A lapsed policy could be revived in up to 5 years from your last unpaid premium's due date, and before the policy matures. Here's what is to be done. The penalty and procedure depends on the time since the policy has lapsed.
- You would have to contact your insurer to complete the policy revival documentation.
- All overdue premiums from the time of last paid premium are to be paid.
- Additional penalties (along with accumulated interest) to the tune of 12 to 18% would be levied. Do remember the sooner the policy is revived, the lesser are the penal interest charges.
- Medical tests may be called for if the policy is revived post 6 months from the last premium paid date.
Preventing a Policy Lapse
A policy lapse not only leaves you and your family without a life cover protection, but a revival also brings with it additional costs. It is wise to avoid such lapses and ensure the policy stays in force to meet unforeseen emergencies. Here is what you could do to ensure your policy does not lapse and you aren't left high and dry.
- Opt for bank mandates: If you are in a job that involves travelling or, are simply unable to keep track of premium due dates, opt for ECS payments. You could mandate your bank to make payments on your behalf by automatically debiting the amount from your account. You could alternatively opt for credit card auto-pay where the premiums would be charged to your credit card.
- Reminders through mailers: Almost all insurance companies these days provide the option of sending payment reminders through emails, SMS or regular post. You could opt for these reminders. Do ensure your contact information is update with the company.
- Financial crunch: If you are facing a temporary financial crunch, try evaluating your insurance need again. You could opt to review your sum assured. It is better to have some insurance than not be insured at all.
- Making use of the grace period. Be aware of what the grace period of your life insurance policy is. If you have missed making your premium payment due to any personal commitment, do try making the payment before the grace period is over.
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