What is Policy Lapse? 

Suppose Rakesh, a 30-year-old man, bought a life insurance policy and opted for monthly premium payment mode. He regularly paid his premiums for the first few years, but during a period of frequent travel and banking issues, he missed one month of premium payment.

Although his insurer offered a 15-day grace period to make up for the missed premium, Rakesh was unable to pay within that time. As a result, his policy lapsed, meaning he lost all the benefits of the policy. This lapse meant that if something were to happen to Rakesh, his family would not receive the death benefit that was initially promised. This highlights the importance of regularly paying your premium to maintain coverage.

What does a Life Insurance Policy Lapse mean?

Policy lapse refers to the situation in which you can no longer avail the benefits of your policy and the covered provided by it. Once your life insurance policy lapses, you also lose the right to make a claim against it. In other words, the policy lapse occurs when a life insurance plan expires without being converted or renewed to another type of policy. The lapsed plan will not pay the death benefit in case of your unfortunate death.

What Causes a Policy Lapse?

Policy lapse, in most cases, occurs due to nonpayment of premiums. There can be a number of reasons that can result in the non-payment of your premiums such as travel, problems with your bank account, etc. Insurance companies often recognise these and don't terminate your policy immediately when you fail to pay your premium. The insurers often provide a grace period for which the policy's benefits remain active.

The grace period is often 30 days after the premium due date. If one pays the premium within this grace period, then the policy's benefits and coverage continue. However, in case of non-payment, the insurance company has the right to terminate the policy. 

In ‘no lapse insurance’: Opting for a one-time premium insurance plan can help mitigate the occurrence of a policy lapse. Just pay your premium once, and you'll be stress-free in such a case if a policy lapses.

Is it Possible to Revive A Lapsed Policy?

Different term insurance plans have different policies for reinstating a policy that has been lapsed. However, based on your payment history and the nature of the plan, most insurance companies levy an interest on the unpaid premiums before restarting a lapsed policy. Once the unpaid premiums and interests have been paid, the policy will be restarted, and the policyholder and the beneficiaries can continue to enjoy its benefits.

How To Revive a Lapsed Life Insurance Policy? 

One of the first things to do is to contact your life insurer and let them know that want to revive your policy. Then, you are requested to submit a written request and also required to submit good health proof. After submitting your request, the life insurer will review the document and if they can revive your plan. Here are some of the steps which are followed for the purpose of reinstating the lapsed policies: 

Step 1: Contact your life insurer

Step 2: Review your policy documents

Step 3: Determine if you are required to submit a request through a written application 

Step 4: Pay the over-due premiums 

Step 5: Pay your premiums on time. 

How to Avoid a Policy Lapse?

Purchase a ‘No lapse insurance’: Opting for a one time premium insurance plan can help mitigate the occurrence of a policy lapse. Just pay your premium once and be stress free.

Choosing auto-payment feature: This ensures a steady payment schedule. Depending on your budget and suitability, it can be set up monthly, quarterly, or annually.

Wrapping It Up!

You must be careful before choosing a policy whether they will be able to pay the premiums it demands. Non-payment of premiums can lead to policy lapse, which can terminate your policy's benefits and coverage.

Note: You should also check the term insurance benefits if you are planning to purchase the term insurance plan.

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