Has your life insurance policy lapsed because you missed the premium due date? Or were you unable to pay the premium because of your sudden job loss? Or did you decide not to pay because you misunderstood the policy features, but later on wish you had continued with the policy?
You can revive your lapsed life insurance policy without too much of a hassle. And if you do it during the revival campaign organised by your life insurance company, you can save the penalty that is charged otherwise.
Most life insurance companies organise campaigns to revive lapsed policies just before the end of the financial year. This helps them to improve their assets under management and shore up their bottomline. For customers, it is an opportunity to enjoy the continued life cover and the bonuses that will be restored on the revival. Let us see how it is done.
Why do policies lapse?
One of the most common reasons why life insurance policies lapse is policyholders forgetting the date of premium payment, says S Mahesh, executive vice-president and head - operations, Future Generali India Life Insurance. "We encourage policyholders to opt for the auto pay option, especially for monthly premium payments. But often policyholders are not aware of the exact date to pay the premium and hence the policy gets lapsed."
Sometimes, it could be because the policyholder has doubts over the product features. In such cases, the company reaches out to the policyholder to clarify doubts.
In some cases, the policyholder may deliberately let the policy lapse if she finds another policy with similar features and lower premium, says Anil Kumar Singh, chief actuarial officer, Aditya Birla Sun Life Insurance.
This happens as insurance companies launch new products based on revised mortality tables where the life expectancy is higher and thereby it is possible for companies to offer better pricing.
In case of some policies, the company may allow you to change the payment term from annually to half-yearly or quarterly. Use this option, if it is available, to manage your cash flow, advises Mahesh.
Why revive a lapsed policy?
The biggest risk when your life insurance policy lapses is that you lose the risk cover or protection, which is the aim of buying insurance. "If you have to buy a new policy, your premium may increase if you have moved to a higher age band. But if you revive your lapsed policy, the premium will be the same,'' points out Singh.
Another advantage is that all benefits, such as bonuses, that are accrued during the policy term, will be restored, Singh adds.
By reviving a lapsed policy, the objective for which the customer purchased the policy in the first place is fulfilled, points out Mahesh.
Future Generali India Life has currently launched a campaign called Revival Time to reinstate lapsed policies. The campaign is on till March 31. A customer who revives a lapsed policy during this time will not have to pay late fees up to Rs 2,000 on the outstanding premiums.
"This is the biggest benefit while reviving a policy during the campaign. Many times, policyholders don't want to pay the penalty and hence don't revive their lapsed policies. But by doing so, they lose out on the financial benefits,'' Mahesh points out.
Conditions while reviving lapsed policies:
All insurance companies give a grace period of 15 days to pay the premium in case of monthly premium and 30 days in case of quarterly, half-yearly and annual payment. If you don't pay within this period, but pay within three to six months, then you will have to pay a penalty or interest along with the lapsed premiums. The interest is calculated based on the delay in paying the premium after the due date. Remember, you have to pay all lapsed premiums to reinstate the policy.
If you still have not paid the premium, then companies usually allow you to revive the policy up to a period of two years after it has lapsed. You will have to sign a declaration of good health. In case the sum assured is higher, you may have to undergo a medical check-up and if you are found to be suffering from any ailment, your premium could increase.
"You have to pay interest for revival of all traditional policies. Only for Unit Linked Insurance Plans (Ulips) there is no interest for revival because you lose the growth in the net asset value during the period,'' says Singh.
Another advantage of reviving the policy during the campaign is that the company may relax the conditions for a medical check-up, Singh adds.
For instance, if the company usually asks for a medical test for a revival of a policy having sum assured of Rs 10 lakh, during the campaign, it may be allowed for policies having sum assured of up to Rs 20 lakh.
By definition, revival of policy does not mean that premiums will go up, but if you have developed any ailment during the interim, then the company may charge a higher premium.
"It is critical that policyholders provide the correct information in their declaration. In case of non-disclosure of material facts, then the claim could be repudiated or rejected,'' warns Mahesh.
WINDOW FOR REVIVAL
- While reviving the policy during the campaign the company may relax the conditions for a medical check-up
- If the company usuallys ask for medical test for revival of policy with Rs 10 lakh sum assured during the campaign the sum assured may be raised to Rs 20 lakh
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