Why one should renew insurance policy and not let it lapse

The primary objective of a life insurance policy is to provide financial cover in the eventuality of a mishap and to provide a consistent flow of income in the absence of the breadwinner. If human life is lost or a person is disabled permanently or temporarily, there is, of course, a personal loss as well as a loss of income to the household. The life insurance proceeds paid by the insurance company replaces that lost income. It, therefore, becomes the responsibility of every working individual to provide a financial safety net especially for their family, to ensure a financially uninterrupted life, in case of fatal adversity.

Insurance is a protection tool

It is very important to understand the significance and role of life insurance as a protection tool. The process of buying a life insurance policy must start with an assessment of one's protection gap, which is the difference between the life insurance cover an individual should have and what he currently possesses. There should be adequate protection cover that will help the dependents to maintain the same standard of living in the absence of the breadwinner.

Renewing the policy

It is important to note that a lapsed policy means having to forego a claim, which is the primary purpose of buying protection cover for one's family. After buying a policy one must regularly pay renewal premiums to keep it active. In case the renewal premium is not paid, the protection cover may cease to exist or the value of benefit may drastically come down.

Life insurance companies adopt various avenues like renewal notice, SMS and tele-calling to contact policyholders in order to ensure that the protection policy does not lapse. A policyholder must, therefore, be responsible and inform the insurance company in case of a change in residence or contact number, along with proof of new residence, in order to ensure service continuity.

One can also choose premium payment mode using options that work best for the individual. The idea is to ensure that the policy remains in force.

Helping the insured stay financially covered

To encourage consumers to stay insured, life insurance companies have come up with various reinstatement initiatives. With the help of these initiatives, consumers can now reinstate their lapsed policies after the grace period by paying nominal late payment fees and health declaration as applicable to safeguard their future financial protection for loved ones.

As industry data shows, a significant number of people allow their policies to lapse owing to lack of funds. To address this issue, several life insurance companies do offer loan facility for paying renewal policy premium in easy and manageable instalments. Unlike a personal loan from a bank or a credit card provider, this facility doesn't require any security or collateral from customer for availing the service. Initiatives like these ensure continuity of life cover for customers even if they are faced with a fund crunch.

Things to consider

Share the details of your life insurance policies, like sum assured, premium amount, benefits, renewal dates etc with your family members.

Our financial situation is dynamic. It changes with our life stages and age. So it is important that we review our life insurance needs regularly. A life insurance cover which was adequate yesterday may not be so tomorrow.

Before taking a home loan or any other loan liability, please ensure your existing life insurance policy is renewed.

Keep updating your contact details to insurer regularly to get communications on time.

So, do not fail to renew your insurance policy as it is said that precaution is better than cure. Traditionally, built on the principle of a tax saving, it's now time that life insurance becomes an integral of our financial planning.

The writer is senior VP - corporate strategy,Tata AIA Life Insurance