Policy lapses and renewals

When it comes to securing your family’s future, life insurance is key. You may have a policy in place, but it’s quite possible you miss a premium payment for some reason or the other and the policy lapses. The good news is that you have the option of reviving the policy. Even so, it’s important to understand what works better for you -- reviving your lapsed policy or buying a new one altogether. Let’s understand this in detail.

Benefits of the term insurance plan are available to nominees of the policyholder as long as the premiums are paid on time and the policy remains active. If, for some reason, a policyholder fails to pay the premium before the due date, he or she can do so within 15-30 days’ grace period. In case the premium is not paid even during the grace period, the policy lapses.

How to revive a policy

The lapsed policy can be revived within five years of the last date of its first unpaid premium. To revive a lapsed policy, one needs to pay the accumulated unpaid premiums along with interest and taxes. Depending on the policy terms and conditions, the policyholder may also have to pay a penalty and revival charges. If more than six months have passed since the policy lapsed, the policyholder may also need to undergo medical tests. Under certain special schemes, they can get a discount on these charges.

Reviving a lapsed policy vs buying a new one

It’s possible that a policyholder may have been unable to pay the insurance premium for some reason or may have even forgotten to do so, causing the policy to lapse. At a later point of time, he or she may again feel the need to possess life cover. In such a situation, the policyholder has two options — reviving the old term insurance policy or buying a new one. This dilemma is confronted by many and there is no single solution. The choice varies from case to case.

Because reviving the lapsed policy attracts additional costs apart from the unpaid premium, these must be taken into account while making a choice. On the other hand, buying a new policy would mean a higher premium because you bought your lapsed policy when you were younger and with years having passed, the new premium would most likely be higher. So one must compare insurance plans offered different insurers to get the best deal.

Having taken all these factors into account, one would realise that sometimes it makes more sense to renew your lapsed policy and at others, it is better to buy a new one.

In cases where the old policy was bought a long time ago and lapsed a short while back, it often makes more sense to revive the policy since the difference in premium between the lapsed policy and a new one would be too wide. In some cases, insurers offer to waive interest and penalty charges to revive a policy. This is a good opportunity to revive the old policy and it makes financial sense.

If the old policy was bought recently and not many premiums were paid, it may make more sense to opt for a new one as the cost of reviving it may outweigh the benefits of staying with it. Better options at comparable premiums may be available from other insurers.

Enhancing coverage with a new policy

If a policyholder is not satisfied with the coverage offered by the lapsed policy, which could be due to an inadequate sum assured or absence of riders, he or she may consider buying a new one. It would make more sense to enhance the coverage to suit your evolved needs.

Most insurance companies keep coming up with new features to cater to the consumer-centric insurance market. If, at the time of buying the policy, you could not opt for a useful feature that is available now, you may opt for a new policy. For instance, some policies now come with an exit option where if you want to discontinue your policy, you would be paid back all the premiums that you have paid until then for the base protection. Some policies also come with a benefit wherein, if the policyholder dies, a life cover will start in his/her spouse’s name which will be half the life cover of the policyholder and the nominee will receive the sum assured. Such factors need to be taken into account when you decide whether to revive a lapsed policy or purchase a new one.