Did you forget to pay the life insurance premium on time? A lot of people in India who are holding life insurance policies are unable to pay life insurance premiums continuously and end up having a lapsed life insurance policy.
Reasons for a Lapsed Life Insurance Policy:
- After paying annual premium of Rs 7000 for 10 years, you feel you have wasted Rs 70000 and don’t want to waste more.
- You start up a new endowment plan or a ULIP which is sold to you over the phone by the sales agent and discontinue your current insurance policy.
- Your disability to pay premium as a result of financial crisis.
This could turn out to be a serious problem for your family dependents in case of your untimely death because the insurance company is not liable to pay you the sum assured after the life insurance policy lapses.
Why does an Insurance Policy Lapse?
Every life insurance policy has got a due date and grace period for premium payment. Generally life insurance companies offer a grace period of one month in case of annual and quarterly premiums and 15 days as grace period for monthly payment of life insurance premiums.
For Example: If Ravi has a due date of 14th of every month for insurance premium, if he is unable to pay it till 29th of any month, his life insurance policy would stand lapsed.
Tip: One important point to note over here is if the policy holder dies after the due date and the insurance premium is yet to be paid, the insurance company is still liable to pay the sum assured to the nominee of the insurance policy holder
Impact of a Lapsed Life Insurance Policy
A life insurance policy lapse indirectly means you are not insured. Just think for a while, if something happens to you, how will your family dependents fulfil their expenses?
A Sample scenarios and expenses from Ravi’s life is as below
- Routine expenses of around Rs 5,00,000 annually
- Child Education @ 20 Lakhs assuming 8% inflation rate after 10 years
- Child Marriage @ 50 Lakhs assuming 6% inflation rate after 15 years
How to Revive a Lapsed Life Insurance Policy?
There are different kinds of life insurance policies i.e term insurance, whole life policy and endowment policy and you have the chance to renew any one of them within a stipulated time period. Once this stipulated time period of 2 to 5 years ends (depends upon company to company), you will have no chance to revive your life insurance policy.
- If there is a gap of only 6 months between the date of lapse of insurance policy and the date of renewal of insurance policy, then you need to pay the overdue premium along with the interest therein to revive the lapsed insurance policy.
- If you revive the life insurance policy after 6 months due to some reasons, then the cost of reviving a insurance policy can be much more. Firstly, you have to pay the overdue premium along with the interest payments of around 18% from the date of policy lapse plus the policy penalty fees.
- There are chances of your application getting rejected for reviving your life insurance policy if the insurance company is not comfortable on grounds of possible fraud or you have developed certain diseases which were not a part of medical reports earlier.
How can you File a Insurance Claim if Policy Lapses
If you have a lapsed life insurance policy, there are two different conditions which allows you to file for an insurance claim:
Condition # 1
If your insurance policy was less than 3 years old before policy lapse, your family dependents may not get anything on the policy lapse. Under some cases, the insurance company might pay you the paid premium by you till date to your family dependents after your death
Condition # 2
If your insurance policy was more than 3 years old, your family dependents can claim sum assured when this sum assured amount would be much less as compared to the original sum assured.
Conclusion – Lapsed Life Insurance Policy
Most life insurance policy experts advise customers to purchase life insurance while still young because as people age, insurance becomes more expensive. To avoid the problems that a future policy lapse can cause, you should be sure to completely review your life insurance policy, coverage, lifestyle, and needs to avoid any complications.
Policy lapses mainly when the policy holder do not have the will to pay the premiums well in time. Those who have the will to protect and secure their loved ones, pay the premiums when these are due. They some how mange the funds because they understand the importance of financial planning.