Revive your lapsed policies, the easy way

Policies may get lapsed for a number of reasons. But you can revive them without too much of a hassle. Dhruv Agarwala & Kartik Varma offer some suggestions

MANY of us are often unable to continue paying premiums towards our life insurance policy, causing the policy to lapse. Policy lapsation can be dangerous as you or your financial dependants/beneficiaries may not get any benefit, which was the reason for buying the insurance cover.
    One needs to know the reasons behind the policy lapsation and how one can revive it, if need be, at a later date. An insurance policy may cease to exist due to various reasons. It could be because of carelessness or because one doesn't see value in continuing with the policy, or because of a financial crisis and can't afford it any longer. Here are some basics on policy lapsation and revival that all policyholders must know.
How does a life insurance policy lapse?
As long as you pay your premiums regularly, your policy will remain alive. If something happens to you during this period, the insurance company will honour its commitment and pay you or your beneficiaries, depending upon the type of policy you hold. However, if you stop paying your premium, then the insurance company will no longer be obliged to continue providing an insurance cover on your life. In this situation, your policy is said to have lapsed. The insurer might not provide any monetary benefits (the sum assured under the policy) to you or your beneficiaries if something were to happen to you.
    Before your policy lapses, you still have a limited time period during which you can make good on a delayed premium payment. If you are late on your premium payment, the insurer will send you a reminder and give you a grace period within which to pay your premium. This is usually 15 days when you pay your premium monthly and 30 days in all other cases. If you fail to pay the premium even after this grace period, your policy will lapse. The insurer will send you a letter informing you about the same.
Can I revive a lapsed policy? Will the benefits be the same after
revival?
Most traditional policies (like term, whole-life and endowment plans) can be revived, subject to certain criteria that your insurer might impose on you.
    Revival can happen at any time, but the conditions for revival might depend upon how long the policy has been lapsed for. Under the insurance laws, if the policy has been in force for at least three years, the insured gets up to two years to revive the policy. Some insurers like LIC have special schemes under which policies can be revived for up to five years from being lapsed.
    If you revive the policy within six months from the date of lapsation, the process might be as simple as paying the overdue premium (and interest) to catch up on the delay on your part.
    If you revive the policy after six months from the date of lapsation, you might be required to pay the overdue premium, penalty fees, as well as interest payment that could be up to 12-18% of the premium payment, depending upon the type of policy and the date of purchase.
    At the time of revival, the insurer might impose a lot of conditions or even decline your request for a policy revival if the company is not convinced about the integrity of your application on grounds of suspected fraud or the like. It can be very likely that the insurer will ask you to appear for a medical test before the policy can be revived to ascertain whether you have developed a new medical condition during policy lapse that might expose the insurance company to a high risk in insuring your life.
    At the time of revival, usually, full benefits that you or your beneficiaries are eligible for will be reinstated. However, if after revival, the insured commits suicide within one year, the insurer can deny the claim. Similarly, if the insured passes away within two years of the revival, the insurer has the option of conducting an inquiry before they decide to pay the claims to the beneficiaries.
Can one still file a claim on a
lapsed policy?
If a policy is less than three years old but lapses, and if something happens to you after the policy lapses, and a claim is filed, the insurer will not pay you anything. At best, the insurer might be willing to give you or your dependants the premium payments that you have made. But, this is also totally at the insurer's discretion.
    If a policy is more than three years old, but lapses, and if something were to happen to you, under the existing insurance rules, your dependants can still get some benefit. However, the insurer will pay only a reduced sum assured based on a pre-set formula (for those who are technically inclined, it's the number of premiums paid to the total number of premiums payable).
What if I am facing a cash crunch and can't pay my premium?
One choice you have is to review your insurance contract and change the terms. For instance, you can reduce your sum assured and your premiums will go down accordingly, perhaps making it more affordable for you to keep the policy in force.
    Life insurance is a necessary financial instrument that every person with financial dependants must have. Don't let your policy lapse, otherwise your financial dependants might end up facing financial hardship when you are not around to provide for them.
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