How to Revive a Lapsed Life Insurance Policy

Life is uncertain, and you must have purchased a life insurance policy to financially protect your family in your sudden absence. In the present situation where Coronavirus (COVID-19) had brought the entire world to a halt, you may have missed paying the life insurance premium.

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Most insurers allow an additional grace period of up to 30 days after the premium due date during which you can pay the pending amount for continued coverage. However, if you do not pay the premium within this tenure, your policy will lapse.

Once your policy lapses, you lose all the benefits. Fortunately, as per the Insurance Regulatory and Development Authority of India (IRDAI) regulations, all insurance companies must allow policyholders to revive the lapsed policies within two years from the lapse date. Several insurers provide special offers to revive lapsed life insurance plans with the exemption of any fines or other concessions.

When does a policy lapse?

In most cases, a policy lapses if you do not pay the premium within the grace duration offered by the insurer. However, it may also depend on the form of life insurance plan; therefore, you must check the same at the time of purchase. Here is the revival procedure for different types of life insurance policies:

  1. Term plans

Pure risk covers like term plans lapse if you do not pay the premium on or before the due date. In this case, you lose the coverage as well as all the premiums you may have paid to date. You can revive the policy within three months of its lapse by providing a health declaration form. However, if you fail to revive it within six months, you will have to undergo medical tests, which may differ based on the underwriting guidelines.

  1. Unit-linked insurance plans (ULIPs)

If you do not pay the premium in the first five years from the date of purchase or during the lock-in period, these types of life insurance plans lapse. You can reinstate the policy within two years from the date it lapsed. When the policy lapses, the insurer shifts the total fund value to a discontinuance fund and levies a discontinuance fee. The discontinuance fee is up to INR 6,000, which gradually becomes nil.

If you do not pay the premium after the lock-in duration, you can either surrender the policy or revive the same. Alternatively, you can convert it to a paid-up policy with a reduced sum assured (SA).

  1. Traditional life insurance policies

If you do not make the premium payment before a traditional plan acquires the surrender value (paid-up value), you may lose the amount you have paid till date. If the policy acquires the paid-up status, it will not lapse on failing to pay the premium; however, the coverage continues at a lower SA. Depending on the insurer, a traditional plan can be converted to a paid-up policy after two or three years from the date of purchase.

Reinstating a lapsed policy

The revival of a lapsed policy depends on how much time has passed since its lapse. As per the IRDAI guidelines, you can reinstate a lapsed policy within two years if it has been active for at least three years. It is simpler to revive a lapsed policy within six months of its lapse. If you revive it after six months, you may have to pay a steep penalty and interest along with the outstanding premium. Moreover, the insurer may revive the policy with some conditions and increase the premium. You may also have to undergo medical tests to assess your current health status. The insurance company may or may not revive the policy based on your financial and health conditions.

You must not let your policy lapse, as it exposes your family to monetary risks. You can use a life insurance calculator before you buy the policy to know the approximate premium, ensuring it is within your budget to avoid a lapse in the future.

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