Revive discontinued policy and gain a better deal

Policy holders can get a better deal while reviving the policies which have been discontinued due to non-payment of premiums. Mortality charges increase with age. 

Benefits of mortality at the entry age shall be carried forward with the revival of a policy. For instance a person entering into an insurance contract at an age of 30 will be paying fewer premiums than the person aged 35.Hence for a person who is reviving the policy will benefit by getting an extended cover.

“Life insurance is a long-term savings and protection tool bought with a life stage goal in mind. One must avoid lapsing one’s policy and compromising on one’s long- term goals in the first place to avoid a situation where one needs to revive the policy,” says Anisha Motwani, director & chief marketing officer, Max New York Life Insurance (MNYLI).

 At times the policy holders discontinue the policies mid-way by non- payment of premium due to various reasons like financial difficulties, carelessness on the part of  insurance agents in not informing the renewal notice or other inevitable situations. Insurance Regulatory and Development Authority (IRDA) has come up with a regulation on this Thursday  extending the grace period for the revival of unit linked plans (ULIP) to two years in case of discontinuance by non-payment of premium. According to the regulator the new regulation will be in effect from November 1st 2011. Under this regulation the policy holder may have the right to revive such policies within two years from the date of discontinuance.

“The new guidelines are originally to protect the investment of policy holders which provide growth option and life cover. IRDA guidelines are in the right direction to promote customers’ interest,” says K Sahay, CEO of Star Union Dai-ichi Life Insurance.

Grace period refers to the time granted by the insurer from the due date for the payment of the premium without any levy or penalty. During that period the policy remain in force with the prescribed risk cover.

Earlier, the revival (restoration of the policy which was discontinued due to the non-payment of premium) of the policy had to be done within 45 days.

The fund value was calculated as on the date the policy got discontinued. It was added with interest computed at the minimum rate of 3.5 % and given it to the policy holder at the end of the lock-in period.

As per the new regulation, the policy holder can revive the policy within two years and the Net Asset value (NAV) of the fund will be calculated as per the date of revival and the units will be allocated accordingly. The policy holder may be compensated for the discontinuation charges if the policies are revived.

“The policy holder is advised to revive the policy as he gets an extended cover by reviving it within the grace period and it is the main motive behind an insurance contract. By extending the grace period for the market linked policy the customer is at the advantage of benefiting from the upside of market movements. It would be of course a challenge for the insurers for building the system for an extended grace period and getting into it,” says Malathi Narasimhan, chief operating officer, SBI Life Insurance.

While reviving the discontinued policy within the stipulated grace period, establish the details regarding pending premium along with the interest. Insurance companies may ask the policy holder to submit the documents regarding current health conditions while reviving the policy. Insurers may take into account factors like sum insured, age, and lapsation period for reviving the policies.

“We connect with all our customers prior to the premium due date through reminder calls, emails and sms and also provide easy premium payment options though online and phone banking payment, auto debit facility and drop box options at our branches and bank ATMs,”added Anisha Motwani.