As insurance contracts are generally long term in nature, there are chances that a policy may lapse because of an oversight while making the premium payment. Typically, a policy lapses when the premium is not paid within the grace period, which is 30 days for annual, half-yearly and quarterly renewals and 15 days for monthly renewals according, to the IRDAI recommendations.
A lapsed policy means that a policy is not in effect and will not offer any benefits as stated in the policy in the event of the policyholder’s death. However, a lapsed policy can be revived by the policyholder during the period allowed by the insurer before its maturity.
A policy can normally be revived by paying the unpaid premium and interest, generally within six months of the first unpaid premium and other requirements that the insurer may ask for, which could be health declaration or medical reports. The demand from the insurer will vary and depends on the norms they follow when reinstating a lapsed policy, depending on the duration for which the premium is unpaid. Other factors that are considered include age of the policy holder and the sum to be revived under the policy.
For instance, if the gap is a few years, chances are that the insurer may charge a higher mortality rate. What this means is that you may not get the policy at the same terms and rates as you had before it lapsed.
There is a charge applicable when reinstating a policy. The insurer may also impose a penalty which could be a flat fee to revive the lapsed policy. In case the policy is one which comes with a bonus, the lapsed policy will not receive it. In case of traditional insurance policies, the 2013 guidelines to revive comes into action, which means a higher mortality charge is applicable.
There are times when insurers initiate special revival scheme for the lapsed policies by waiving off any charges and fee, which should be used wisely to reinstate the lapsed policy. If you have been paying the premiums on a policy for more than half of the policy tenure before inadvertently lapsing it—you should definitely revive it. If you are planning to let a policy lapse, just make sure you do the basic math to arrive at your loss before making a final decision.
Revival checklist
- The time lag from the time the policy lapses to reinstatement request
- Number of years gone by before seeking reinstatement
- Fresh health declaration or medical check
