Term Life Insurance Policy Got Lapsed? Here’s How You Can Revive It
Term insurance is one of the most important financial decisions you’ll ever make to secure your family’s financial future. It pays a fixed sum of money to your family if you pass away during the policy term. This money will help your family cover their short-term and long-term financial needs.
However, just buying term insurance is not enough. You must also ensure that you pay all your policy premiums on time so that your policy remains active until the end of the term. If you don't do the same and miss even one premium payment, there is a risk of your policy being lapsed.
What is a Lapsed Policy?
If you fail to pay your premium by the due date i.e. the final date for making the premium payment, insurers offer you a grace period. If you don’t pay the premiums to the insurer during this grace period, your policy will lapse - meaning, it will expire or become inactive and you'll lose your coverage.
Understanding the Grace Period
Grace period is the additional time span given to policyholders during which they can pay the missed premium instalment without losing their insurance cover. Generally, insurance companies provide a grace period of 30 days in Life Insurance after the original premium due date of your policy.
If you pay the premiums within the grace period, your policy will not end and you and your family can continue enjoying the benefits of the term cover.
If you fail to pay the premiums within the grace period, your policy will lapse, and you and your family will lose the term insurance coverage.
Please bear in mind that your insurance coverage remains intact during the grace period. So, in case you pass away during the grace period, the insurer will pay the sum assured to your nominees minus the premium amount you owe. However, upon expiry of the grace period, your term cover will immediately cease and no amount will be payable.
Let’s understand this with the help of an example
Arjun takes a term plan of a sum assured INR 1 Crore for a duration of 40 years where he is required to pay INR 30,000 annually for the next 40 years. He pays all his premiums on time for 30 years. However, he misses the annual premium in the 31st year due to oversight.
As per policy conditions, Arjun has a grace period of 30 days during which he can pay the outstanding premium amount. Arjun suffers a heart attack on the 20th day of grace period and passes away. Since his policy is in grace period, Arjun’s claim is payable & the insurer should settle the claim after deducting the last outstanding premium amount of INR 30,000.
Had Arjun’s death happened after the grace period (with a lapse of policy due to non-payment during the grace period), all benefits under his policy would have ceased and his nominee would have got nothing from the term insurance policy that Arjun painstakingly kept running for 30 years.
Is there a way to reinstate or revive a lapsed policy?
Yes, the revival of life insurance policy is possible. After the grace period, policyholders have one more chance of reviving/reinstating their lapsed life insurance policy during the revival period of 2 to 3 years given by Insurers. Here’s how you can go about it -
- Raise a request: The application process for the revival of policy may differ from insurer to insurer. You can get details about the process to be followed from your policy document. As per the terms and conditions of your policy, you’ll have to raise a request for revival of your term insurance with the Insurer. Some insurers may even ask you to fill a separate revival form/proposal form.
- Payment: After your revival request is approved by the Insurer, you’ll have to pay all due premiums till date of revival with applicable interest rate + the revival charges applied by your Insurer.
- Medical examination: The insurer may also ask you to undergo a medical check-up based on your age. In case you’ve developed a new disease or a medical condition, the insurer may -
- Charge additional premiums and impose new terms and conditions before re-issuing the policy, or
- Not accept your proposal at all.
Reviving a lapsed policy comes with its own costs - you’ll have to pay the penalty for missing the premium payments and undergo medical tests again. If the results indicate you’re too risky, the insurer may refuse to re-issue the policy. Therefore, you should do your due diligence and pay your premiums on time so that you and your family don’t lose your term insurance coverage.
You can ensure you don’t miss a premium payment by choosing the e-SI (electronic standing instruction) option at the time of buying the term insurance policy. With this option, your premiums will be transferred to the insurer directly, and on time. In case an e-SI isn’t available with your insurer, or you missed opting for it, you can activate the standing instruction after you get the policy by connecting with the insurer or the bank.
Got a question related to lapse and revival of insurance policy?
Post it on the Beshak Insurance Forum and get answers from insurance experts, for free!
- A lapsed policy is a policy that is terminated due to the non-payment of premiums on the due date or within the grace period.
- When your policy lapses, all the benefits of the policy will immediately stop and you and your family will lose your term coverage.
- A grace period is termed as the additional time you get from the insurance company to pay the premium amount after the due date. It is generally 30 days.
- If any uncertain event takes place during the grace period, the insurer will not be liable to pay any compensation to your family.
- Most insurers provide a 2-3 year revival period to reinstate the lapsed policy.
- Policy revival can be done by raising a revival request as per the terms and conditions of the revival.
- During the revival process, besides paying the due premiums, the insurer may ask you to pay the revival charges as well.
- The insurer may also ask you to undergo a medical examination based on your age.
- In case you are found risky/sub-standard in terms of the underwriting guidelines, your Insurer may also refuse to reinstate the Term Cover.
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