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Term insurance policy lapses when you fail to pay the due premium even during the grace period. As a result, your insurance contract ceases to exist. In such a scenario, if something were to happen to you, the insurer will not offer death benefits to your beneficiaries. So, if you have been careless enough to let your policy lapse, here’s what you can still do to revive it.
When does a Policy Lapse?
As long as you pay your premium, your policy remains active. If something untoward happens to you during this period, the insurer will honor the commitment and pay your beneficiaries. However, if you stop paying your premium, your life insurance policy will be considered as lapsed and the insurer will no longer be obliged to provide coverage.
Now, even after the policy premium due date, insurers give a grace period during which you can make the payment. This grace period is of 15 days if your premium payment mode is monthly, else it is 30 days. If you fail to pay the premium even during this grace period, your policy will lapse.
How to Reinstate the Lapsed Policy?
Revival can happen at any time but the conditions for revival might depend upon how long your policy has remained lapsed. As per insurance laws, if the policy has been in force for at least three years, the insured gets two years to revive the policy. If you revive the policy within six months of its lapse, the restoration process is simple. However, if you revive the policy after six months, you may be asked to pay the overdue premium, penalty charges, as well as interest payment that could be 12%-18% of the total premium.
At the time of revival, an insurer might impose restrictions or even decline your request if they are not convinced about the integrity of your application. The insurer can ask you to appear for medical tests to ascertain whether you have developed a new ailment that might expose the former to a high risk in insuring your life. It can reinstate all benefits that you or your nominees are eligible for. However, if you commit suicide within a year of policy revival, the insurer can deny the claim. Similarly, if you die within two years of policy revival, the insurer can conduct an enquiry before paying death benefits to your nominees.
Can One Get a Claim on Lapsed Policy?
To answer this question let’s look at specific scenarios.
Scenario 1: You stop paying the premium within 3 years from the date of policy purchase
In this situation, the insurer will not pay any death benefit.
Scenario 2: You stop paying the premium after 3 years from the date of policy purchase
The insurance company will pay death benefits to the beneficiary after deducting the unpaid premium.
Life insurance is a necessity that every person with or without dependents should buy. Don’t let your policy lapse, as it can jeopardize the financial security of not just your family but also you.
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