While it is important to buy a life insurance policy to take care of the financial needs of dependents in case of untimely death of the policyholder, it is equally important to pay the renewal premiums on time so that the policy does not lapse. If a policy lapses, he will not only be unable to get any claim but wont even be able to revive it after a certain point of time.
Not renewing an insurance policy even during the grace period defeats the purpose of buying a cover. Insurers send mails and messages a month before a policy is due for renewal. If the premium is not paid within the due date, insurers give a grace period which is 15 days in case the premium is paid in monthly instalments and 30 days in case the premium is paid on a quarterly, half-yearly or yearly basis.
Grace period to lapse
If the premium is not paid even during the grace period, the policy lapses and all the benefits covered under the policy are terminated. While some companies run special campaigns to revive lapsed policies, policyholders must check the policy details and get in touch with the insurer to revive a lapsed policy. A policyholder must note that the policy is still in force during the grace period. So, if anything happens to the policyholder during that period, the nominee would still be eligible for the claims and all other benefits associated with the policy terms and conditions.Also Read
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In order to promote the persistency of life insurance policies and address the gap created by the exit of insurance agents in servicing life insurance buyers, the insurance regulator has set norms that insurance companies allot lapsed orphan life insurance policies to individual insurance agents whose registration is in force. The allotted agents details would be intimated by the insurer to the policyholder concerned.
Reviving the cover
In life insurance, insurers provide a reinstatement period of two to five years to revive a policy. In fact, the Insurance Regulatory and Development Authoritys guidelines stipulate that all life insurance policies underwritten before 2019 will have a maximum revival period of two years and policies underwritten after that will have a maximum revival period of five years and after that the policy will get terminated. If the premium is not paid during the grace period and lapses, the insured will no longer have any coverage and will not be eligible for any death benefit. However, if it is revived, the benefits will once again continue.
A policyholder must read the document which underlines the criteria of reviving the lapsed policy and get in touch with the insurer. To revive a lapsed policy, the policyholder will have to sign a standard revival form, submit proof of continued insurability and may have to go for a medical checkup at a designated medical centre of the company.
Once the company accepts the lapsed policy for revival, the policyholder will have to pay the premium for all the years since the lapse of policy along with interest on outstanding premiums, applicable taxes and even penalty amount for non-payment of premiums. The renewed policy may have new terms and conditions.
While you may think of buying a new policy instead of reviving the lapsed one, note that the premium for a new policy will be much higher as compared to the old policy because of the change in the insureds age and health conditions. Also, the policyholder will not get the bonus accumulated in the lapsed policy.
Ideally, to pay the renewal premium, the insured must set up standing instructions in a bank for electronic clearing services. This will ensure that the life insurance premiums are paid on time and the policies do not lapse.